Executive Summary
Indonesia is moving with some haste towards decentralized governance. If the current schedule is maintained, regional decentralization will take effect from 2001. The primary drivers in this process are two new laws (law no. 22/1999 and law no. 25/1999) that were approved by Parliament in April of this year. One of the units within the central government (Menkowasbangpan) has been entrusted with the task of completing all implementation legislation by October of this year.
While the current legislative framework may well entail a historical transformation of centre-region relations, some external stakeholders and representatives of regional communities have raised concerns about the design of post-2000 decentralized governance. The key point is that unless such design problems are addressed, Indonesia could end up with destabilization rather than decentralization.
The purpose of this paper is to identify the nature of these concerns and to find mechanisms that the donor community could employ to respond creatively to the challenges that are likely to emerge in this domain. This is a major service that it can provide to the new government that is due to be formed towards the end of this year. Such a message builds on the basic premise that decentralized governance can engender lasting benefits, but this really depends on a well-conceived strategy of managing the risks inherent in the reconstruction of the highly centralized state that has characterized the Suharto regime.
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