INTRODUCTION

In 2003, Indonesia's decentralization reform was in its third year of implementation. The “big bang” start had marked the transfer of resources — assets, personnel and finances — to the regions to compensate for the newly added authorities and functions. While the speed and size of the changes to formal structure was phenomenal, the adjustment of non-formal institutional settings was likely to take a long time. Many conceptual and practical problems remained and the path to reform was continuously driven by an evolutionary change in the practices as well as in the perception and expectation of decentralization. Drawing from SMERU field research, this chapter highlights the dynamics of the implementation of the decentralization reform at the local level in the first two years of the process as well as some related issues and concerns. Although the reform was still in its preliminary stages, the findings of these studies show how the reform process has influenced the evolution of governance at the local level. In addition to the general findings, special attention is devoted to the problems of budget allocation, community participation and inter-governmental coordination, faced by two resource-poor regions — West Lombok and Bandar Lampung (City) — in relation to the provision of public services. Although the slow progress at the local level might have been overshadowed by many problems, any progress certainly needs special recognition to allow for special efforts in strengthening local governance.

Indonesia's decentralization reform had been initiated with a hope that it would facilitate better resource allocation and better governance. However, until mid-2003, and after more than two years of implementation, the reform did not yet seem to have delivered significant benefits. Just like many other developing countries undergoing decentralization, the political factors that drive Indonesia's attempts at decentralization had overlooked technical and economical problems. The general view, as recorded in various studies, seemed to prefer an “implement first and deal with the problem later” approach to Law No. 22/1999 and Law No. 25/1999, the two laws that directed the new form of regional autonomy at the provincial and district levels as well as new inter-governmental fiscal arrangement. So, despite much criticism of some of the decentralization framework contained in these two laws, they were made effective as of 1 January 2001.