Before decentralisation was implemented in Indonesia, there was great concern about its prospects. Many doubted the capability of local governments tomanage their own affairs. Civil society organisations were viewed with suspicion by the government. Critics painted a grim scenario, predicting there would be a deterioration in public services and an increase in corruption.

Despite the perceived limitations of the decentralisation laws, implementation went ahead in January 2001. Signals about what was happening on the ground were mixed. The media focused on stories of excessive taxation by local government, with other local initiatives such as the ‘one-stop shops’ set up to issue licences and permits also getting occasional coverage. The regions were in various states of readiness and many of the ‘preconditions’ for decentralisation had not been met. As decentralisation proceeded, it became clear that the central government needed a mechanism to find out what was actually happening on the ground. To fill this need, in July 2001 the Asia Foundation developed an independent monitoring program called the Indonesia Rapid Decentralisation Appraisal (IRDA). The aim was to provide systematic and objective feedback to government and other key actors on the progress of decentralisation, within a short time frame of six to eight weeks.

Using data from the two appraisals already conducted, in this chapter I describe the progress of decentralisation and evaluate it using criteria derived from comparative literature on decentralisation. First I provide some background on the conceptual links between democracy, governance and decentralisation, and formulate a framework for the discussion. I then tackle the research results to describe how local governments are coping with the changes arising from decentralisation. Finally, I provide a summary and evaluation of progress so far.

I argue that the conditions for successful decentralisation are beginning to emerge in Indonesia, 18 months into its implementation. First, there is an evolving policy framework capable of ensuring that the financing and fiscal authority of local government matches its functions and responsibility to provide services. Second, local governments have reorganised their administrative structures to become more efficient in the delivery of public services while at the same time absorbing the large number of personnel devolved to them.