INDONESIA’S LOCAL GOVERNANCE ON REFORM TRACK
Erle Frayne D. Argonza
Indonesia has the largest population in the ASEAN. It is also the economic bloc’s largest economy. Having produced many luminary minds to propel itself to grand visions of prosperity, Indonesia has emerged as the most influential Big Brother nation to its neighbors as its democracy has shown stability worth accolades.
Governance institutions in Indonesia should shore up in terms of strengthening. That means the culture of efficiency, participative culture (partnering with civil society), minimized graft, and related governance indices must improved rapidly in the next couple of years if Indonesia vies for wealth nation status within the bloc and exert leadership in the ASEAN.
Local governance reforms are incidentally on track, though it is too early to pre-judge the results. The reform agenda is still on-going, and it is most fitful for the regional development bank ADB to assist the emerging market in the process.
Below is an update of the reform agenda going on in the country.
[Philippines, 18 October 2011]
ADB $200 Million Loan Supports More Local Government Reforms in Indonesia
4 October 2011
MANILA, PHILIPPINES – The Asian Development Bank (ADB) is extending $200 million to aid Indonesia’s push to develop strong regional governments which can boost growth and cut poverty at the local level.
The ADB Board of Directors has approved a 15-year loan for Subprogram 2 of the Second Local Government Finance and Governance Reform Program. The initiative is helping to boost the financial and management capabilities of regional governments as they handle state finances and services that have been decentralized.
“Since 2001 national government has been devolving key expenditure and revenue functions to regional governments which are now responsible for the delivery of most basic services,” said Juan Luis Gomez, Senior Public Management Specialist at ADB. “Strengthening regional governments so they spend state funds effectively and provide services efficiently and equitably is essential for improving local living standards and reducing poverty.”
The second phase of the program targeted reforms in six core areas, including strengthening local government management of decentralized funds, improving regional administration to boost service delivery, and developing more local revenue sources. Policy actions taken by the national government to support the reforms include the finalization of a comprehensive strategy for fiscal decentralization, the gradual devolution of taxes to local governments, and pioneering steps to introduce gender-based budgeting.
ADB estimates that the direct economic benefits of the program in the medium term will be worth around $820 million, with half the amount due to the improved financial management systems of regional governments and the other half stemming from efficiency improvements in collection of property taxes being devolved to the regions between 2011 and 2014. To build on current gains, ADB has drawn up a post program partnership framework which identifies future reforms to further improve the policy environment and strengthen the institutional capabilities of local governments.
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