Paul Smoke

Fiscal decentralization in Indonesia: A new approach to an old idea

Abstract The system for financing and delivering local public services in Indonesia, as in many developing countries, is highly centralized. Growing awareness of the weaknesses of the present system has recently generated much interest in decentralization and numerous government policies and programs toward that end. In spite of these efforts, the role and capacity of local governments remain weak. In this paper, we outline the most critical obstacles to decentralization and examine a strategy to reduce their significance. Instead of centering our analysis on the definition of a normatively desirable decentralization outcome, we focus on the development of a process through which genuinely feasible outcomes could be defined and implemented, in this case an interministerial and intergovernmental process for evaluating local governments.

The Political Economy of Decentralization Reforms: Implications for Aid Effectiveness

This volume presents a preliminary framework designed to help international development partners consider the relevance of political economy issues for their programmatic support to decentralization and local government reform. The intention is neither to advocate decentralization in general or in any particular form, nor to presume or privilege any particular decentralization objective. Instead, the purpose is to document the potential value of better understanding how (primarily national and intergovernmental) political and institutional dynamics do or could affect the scope for realizing decentralization reforms aligned with commonly advocated service delivery, governance, and poverty reduction goals. The underlying premise is that systematic analysis of these issues can productively complement the dominantly technical diagnostic work typically carried out by development partners. Specifically, development partners can benefit from better understanding the practical significance of motives that drive politicians and bureaucrats to support or oppose reform at various stages of the decentralization process, from making an initial reform decision to detailed design and implementation. In addition, the framework addresses how these incentives can weaken, strengthen, or shift in response to changes in political and economic conditions that arise after reform begins. A general approach to conducting political economy of decentralization analysis is outlined, recognizing the need to tailor such analysis to the particular country context. This volume is based on literature reviews and knowledge derived from selected country experiences.

Local government fiscal reform in developing countries: Lessons from Kenya

Abstract Local government fiscal reform is emerging clearly as a major development issue of the 1990s. As central governments of developing countries cut back their budget growth in response to economic reality and donor pressure, many are attempting to tap the underutilized potential of local authorities to help meet rising service demands. Drawing on a case study of the local finance system in Kenya and that countrys attempts at reform, the challenging economic, institutional and political issues that must often be confronted in such reform efforts are highlighted.

Intergovernmental Fiscal Transfers and Local Incentives and Responses: The Case of Indonesia

Indonesian policymakers are convinced that a number of perverse incentives are embedded in their system of intergovernmental transfers. Officials in countries throughout the developing world have similar views about their own intergovernmental frameworks. In Indonesia, perverse incentives are thought to negatively influence a wide range of local government fiscal behaviours, including as regards own-source revenues, spending and savings. An empirical analysis of the local government response to transfers, however, offers only mixed support for the existence and strength of the presumed incentives. Overall, the findings in this paper highlight the benefits to central governments of rigorously examining assumed perverse incentives in their intergovernmental frameworks before embarking on attempts to expunge them.

Why Theory and Practice are Different: The Gap Between Principles and Reality in Subnational Revenue Systems

Ensuring adequate subnational revenue is a core concern of fiscal decentralization. Public finance principles for selecting and designing subnational revenue sources have been widely used during the prominent wave of decentralization efforts in developing countries over the past three decades. Available empirical literature, however, suggests that subnational revenue generation often fails to meet needs and expectations, even where normative advice has been or seems to have been followed. Are the principles inappropriate, or are they just poorly applied? This paper argues that both factors are often at play. Basic principles are valuable, but they can be challenging to use and do not cover certain critical factors. Even if the principles are relevant and well applied, implementation commonly faces powerful constraints. Yet despite unsatisfying performance, revenue system design remains substantially based on a conceptually narrow normative framework that lacks a sense of pragmatic strategy and is often overwhelmed in practice by contextual factors it fails to or only weakly considers.

The evolution of subnational development planning under decentralization reforms in Kenya and Uganda

In the last two decades the concept of state decentralization has been used to justify contradictory processes and decisions. While advocates stress decentralization of state responsibilities and decision making so that inclusive decision making and participatory planning can advance democratization, critics view state decentralization as a Trojan horse that brings the power of private sector interests into public decision making. The critique points to the outright privatization of public utilities as well as the invasion of the public sector partnerships with private corporations.1. Introduction: Situating Contested Notions of Decentralized Planning in the Global South Victoria A. Beard, Faranak Miraftab, Christopher Silver Part 1: Decentralization: Contexts-Outcomes 2. Decentralization and Entrepreneurial Planning Faranak Miraftab 3. Decentralization, Privatization and Countervailing Popular Pressure: South African Water Commodification and Decommodification Patrick Bond 4. Decentralized Planning and Metropolitan Growth: Poverty and Wealth in Buenos Aires Suburbs Nora Libertun de Duren 5. New Spaces New Contests: Appropriating Decentralization for Political Change in Bolivia Benjamin Kohl and Linda Farthing Part 2: The Challenges of Fiscal and Administrative Decentralization 6. The Evolution of Subnational Development Planning Under Decentralization Reforms in Kenya and Uganda Paul Smoke 7. Decentralization in Vietnams Water Sector: Community Level Privatization in the Mekong Delta James H. Spencer 8. Decentralization and Local Democracy in Chile: Two Active Communities and Two Models of Local Governance Anny Rivera-Ottenberger Part 3: The Role of Non-State Participants in Decentralization 9. Community-Driven Devlopment and Elite Capture: Microcredit and Community Board Participation in Indonesia Victoria A. Beard, Menno Pradhan, Vijayendra Rao, Randi S. Cartmill, Rivayani 10. University-Community Partnership: Institutionalizing Empowered and Participatory Planning in Indonesia Christopher Silver and Tubagus Furqon Sofhani 11. En(gendering) Effective Decentralization, the Experience of Women in Panchayati Raj in India Kajri Misra and Neema Kudva 12. Decentralization and Social Capital in Urban Thailand Amrita Daniere and Lois M. Takahashi 13. Decentralization and the Struggle for Participation in Local Politics and Planning: Lessons from Naga City, the Philippines Gavin Shatkin 14. Conclusion: Making Sense of Decentralized Planning in the Global South Christopher Silver, Victoria A. Beard and Faranak Miraftab

Improving local infrastructure finance in developing countries through grant-loan linkages: ideas from indonesia's water sector

In recent years, developing countries under fiscal pressure have increasing recognized significant weaknesses in their intergovernmental mechanisms for financing local infrastructure. Many countries are in the process of rationalizing poorly coordinated and subjectively allocated grant systems as well as loans. Such efforts, however, are typically undertaken independently of each other, often providing conflicting incentives for local fiscal behavior. I argue that the reform of grant and loan mechanisms should be explicitly linked to improve the overall effectiveness of the infrastructure finance system. The potential complications involved in designing grant-loan linkages, however, are considerable. I illustrate some key issues by examining the water sector in Indonesia, concluding with suggestions for how to think about creating such linkages in other sectors and countries.

Decentralization in Cambodia: Consolidating Central Power or Building Accountability from Below?

In this paper, we critically review the Cambodian decentralization process to date. The next two sections set the stage by respectively providing a brief overview of Cambodia’s economic, social, historical and political context and an outline of the basic organizational structure of government. The fourth section explores the forces driving the introduction and development of decentralization in Cambodia. The fifth and sixth sections respectively describe and evaluate the state of decentralization. The penultimate section outlines decisions that need to be made and challenges that will be faced in moving decentralization to the next level, followed by a few concluding comments. The Cambodian decentralization is recent and there is limited formal literature on the process, so much of the analysis here is based on interviews and our personal observations and experiences over more than a decade working on decentralization in Cambodia.

Looking Beyond Conventional Intergovernmental Fiscal Frameworks: Principles, Realities, and Neglected Issues

Fiscal decentralization and intergovernmental fiscal relations reform have become nearly ubiquitous in developing countries. Performance, however, has often been disappointing in terms of both policy formulation and outcomes. The dynamics underlying these results have been poorly researched. Available literature focuses heavily on policy and institutional design concerns framed by public finance, fiscal federalism, and public management principles. The literature tends to explain unsatisfactory outcomes largely as a result of some combination of flawed design and management of intergovernmental fiscal systems, insufficient capacity, and lack of political will. These factors are important, but there is room to broaden the analysis in at least two potentially valuable ways. First, much can be learned by more robustly examining how national and local political and bureaucratic forces shape the policy space, providing opportunities for and placing constraints on effective and sustainable reform. Second, the analysis would benefit from moving beyond design to considering how to implement reform more strategically.

The Political Economy of Local Infrastructure Planning

Developing countries face considerable challenges in the design and operation of local infrastructure planning systems in decentralized or decentralizing countries. Many of these are well documented, but the complex political economy environment in which planning evolves has received insufficient attention. The forces driving decentralization and other public sector reforms shape how planning emerges, functions and performs. Local planning involves a range of differentially empowered and variously motivated actors at multiple levels and in diverse ways. The dynamics among them can support or undermine authentic local planning, with potentially significant implications for results. This paper reviews the evolution of local infrastructure planning with a focus on least developed countries, outlining the key expected and observed relationships among decentralization, planning systems and infrastructure development. The main goal is to create greater awareness of political economy issues that could inform the design and management of more effective and pragmatic local infrastructure planning systems.