Since the ﬁnancial crisis and subsequent fall of long-term ruler Suharto from power in May 1998, Indonesia’s political system has witnessed dramatic change. The most profound impact has come from the twin processes of democratization and decentralization initiated in 1998 and 1999. Democratic reforms have dismantled the neo-patrimonial system from the top, stripping Suharto and his cronies from power. Decentralization has further eroded the institutions of centralized authoritarianism created during Suharto’s long period of rule. In one of the most radical attempts ever to overhaul the centralistic polity, Indonesia embarked on an ambitious decentralization programme in 1999. In order to prevent national disintegration and foster democracy, Indonesia devolved political power and responsibilities to the several hundred elected district governments. Given the urgent need for a reorganization of central local relations after democratization, Indonesia opted for a fast implementation. Within only two years all major responsibilities of the central state were to be transferred to the urban and rural districts. These were endowed with new ﬁscal resources to deliver public services and generate local development, with 2.4 million civil servants to be transferred to the local level. Due to the far-reaching changes amounting to nothing less than a complete overhaul of the political system within a short time, this process has been called ‘big bang decentralization’ (Hoﬀmann and Kaiser 2002). What started with a big bang approach remained highly contested in the following years. Decentralization ran into serious troubles after the ﬁrst years of implementation resulting in a reformulation of the decentralization law in 2004. Yet even the law revision did not end the political bickering among major state actors. Even nearly a decade after the beginning of democratic decentralization, there seems to be no consensus within Indonesia’s state elite on how to distribute political power between the centre and the regions. Moreover, the devolution of state power has been accompanied by a series of unintended consequences such as an increase in ethnic and communal conﬂicts, greater competition over scarce natural resources, a surge in local corruption and greater administrative and political
fragmentation. Decentralization has further aggravated the weakness of the Indonesian state. What went wrong with Indonesia’s decentralization? This chapter will explore why decentralization faced such enormous diﬃculties and caused so many problems. It will be argued that decentralization has been a protracted process that was confronted at every stage with vested and wellconnected interests at both the central and the local level. Lacking both a serious discussion at the initiation stage and strong political leadership during the phase of implementation, powerful groups at the national and local level derailed the decentralization process. While the nationalist elite and the army feared the disintegration of the nation-state and therefore attempted to preserve the unitary state, regional groupings tried to extend their power base. In the absence of a strong rule of law, the legal framework was often abused by newly formed alliances of politicians, bureaucrats and private interests for rent-seeking activities. It will be shown that the degree of decentralization was often determined by a series of political bargains within and between national and regional actors. To illustrate the political economy of democratic decentralization, the process will be elucidated on two levels. On the ﬁrst, the dynamics involved in the power struggle between the central government ministries and the local governments will be depicted. It will be shown that most ministries were averse to decentralization and only reluctantly took steps to support it. This resulted in a protracted decentralization, where the formal rules of the decentralization game were heavily contested among the major political players. After decentralization had encountered ﬁrst serious problems, the Megawati administration introduced a new decentralization law that curtailed the scope of local governments’ autonomy. After describing the regional autonomy policy and its implementation, the focus will turn to the unintended consequences that accompanied the process. This second section will look at the consequences of the reorganization of patrimonial networks at the regional and local levels.1 It will illustrate the severe fragmentation of the Indonesian state manifesting itself in power struggles between various state elites and the mobilization of ethnic and religious identities.