Regions Demand More

//Regions Demand More

Indonesia’s fourth President Abdurrahman Wahid, (“Gus Dur”) once told a small group in NY that federalism in Indonesia was a “dirty word” but that Indonesia would have to implement it under different name. Gus Dur was referring to the first few years of Indonesia’s independence when it was called the United States of Indonesia and was using the federal system. The USI broke down quickly amidst secessionist demands (as well as other reasons too numerous to articulate here) and the country went back to its first model, a unitary republic with everything centralized in Jakarta. Gus Dur’s view is still the prevailing one: Indonesia is unlikely to create a federal model even though it could profit from having one. The perception of enduring secessionist tendencies remains in many policy maker’s minds. The pressure for local decision making was relieved following the passage of decentralization and revenue sharing laws in 1999 under President Habibie (who directly followed President Suharto) The implementation of these laws has brought more revenue and wealth to Indonesia’s resources rich provinces. As opposed to the Suharto era when over 60% of all bank deposits were in Jakarta, today its just the reverse. Habibie’s policies were visionary in that they understood that the country could not develop adequately with Jakarta calling all the shots. Today the growth evident in Indonesia’s regions is attracting investment but has also created regulatory confusion. The implementation of these laws has created a good deal of uncertainty in the extractive sector where legacy contracts created under a centralized authority can be in conflict with local regulations and interpretation. Indonesia’s regions, especially those endowed with natural resources, are demanding more of a share of revenue. They see huge infrastructure needs not being met with their restricted budgets. The battle has already begun with regions first wanting to own shares of mines and oil and gas fields and now a larger shares of royalties and tax revenues. Among the consequences for business are permit and contract renewal delays and more uncertainty. Drilling rates drop and production targets are not met. As regions and municipalities increasingly chart their own destinies Indonesia has to reconcile the many regional/central anomalies into a coherent system, of course, without using the word “federalism”.

By | 2017-11-10T14:29:42+00:00 February 14th, 2012|Uncategorized|0 Comments

About the Author:

Wayne Forrest is President of the American Indonesian Chamber of Commerce, a private not for profit membership organization based in NY.

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