Public sector reforms and financial transparency: experiences from Indonesian districts.(Report)

Public administration in Indonesia has changed dramatically since 2001. The country has gone through one of the fastest and most comprehensive devolution reforms ever seen. Managerial and financial responsibilities have been decentralized from central government, mostly to local government at the district level. There are now 473 districts, representing the third layer of a five-tier government hierarchy. The reforms followed the severe economic crisis that started in 1997 and the introduction of multi-party elections and democratic governance in 1999. Notwithstanding these developments, transparency remains very limited and there are clear signs of escalating corruption at the local government level. (2) There are strong tendencies to political capture, which further the interests of new local elites, (3) and continued democratic development is threatened by the people's lack of trust in the civil service and local political institutions. (4)

Decentralization may have been a step towards "good governance" but mainly reflects a change in the national power balance, which gives increased chances for opportunistic and rent-seeking behaviour among bureaucrats and politicians at the local level. Enhanced levels of accountability and transparency should ideally improve the governance system, but state documents remain confidential, the political will to implement the Freedom of Information Act is lacking, and the government at various levels demonstrates little interest and ability in performance-oriented budgeting. (5) Mechanisms for controlling the bureaucracy are still very weak. Steps should be taken to develop less ambiguous accountability structures and improve systems of monitoring and evaluation. This article aims to help show the way forward.

The main objective of this article is to assess the impacts of administrative reforms and political rhetoric on systems and quality of governance at the local level. Research questions include the following: Why are levels of transparency in government financial affairs generally low in Indonesia? What mechanisms are used to reduce public insight in district budgeting and accounting? What can be done to enhance financial transparency at local levels and thereby reduce levels of corruption among bureaucrats and politicians?

The article begins with a description of the civil service in Indonesia and explains the traditions of opacity in public management. The following section comprises a literature review and presents recent theories and empirical findings on transparency and accountability related to public governance. Methodology and study areas are introduced in the third section, followed by a presentation and discussion of empirical findings.

Traditions and Systems of Opacity in Indonesian Public Management

The Indonesian civil service has its roots in the Dutch colonial administration, which was not open to insight from ordinary citizens. (6) Dutch business interests colluded closely with colonial administrators, and corruption was a serious problem. (7) During the first two presidencies of the new republic--under Sukamo and Soeharto from 1949 to 1998--strong forces worked to concentrate power in the hands of executive bodies in Jakarta and limited influence was given to elected assemblies. As far as possible, power was not diffused, and information on state and administrative issues was monopolized and only portioned out carefully for the benefit of well-established power holders. (8)

During the Soeharto era in particular, the civil service served the dual function of a political instrument as well as a strong and wide-ranging administrative apparatus. It grew to encompass more than four million employees, from central and local administrative units to the police, military, schools and health institutions. Decentralization reforms in 2001 had some impacts on the organization and function of the civil service. A main provision of the new law on regional government (Law 22/1999) was the abolition of the previously strict hierarchical relationship between the central government, provinces and districts. Another provision was that regional heads at both provincial and district levels should be held accountable to regional legislative bodies rather than to higher levels of government. Recently, the regional heads have been elected directly by their respective constituencies and held responsible to them. The 473 districts (kabupaten/kota), with an average population of 500,000, have become responsible for the funding and implementation of activities in sectors including education, health and public works.