Regional Autonomy and the Danger of Bankruptcy

- 1 Januari 1970

Robert Endi Jaweng
Executive Director of Regional Autonomy Watch (KPPOD), Jakarta

Who says that a government entity in the public sector can’t go bankrupt like a private corporation? In some countries, there have been the dissolution and merging of regions due to inefficiency leading to bankruptcy.

In 1970, Denmark cut its number of regions from 25 to 14, while Canada slashed the number of its municipalities from 815 to 445 through 2004, and Japan in 1999-2006 reduced the number of municipalities from 3,232 to 1,821. Some other countries followed suit for the sake of efficiency, citing the whopping operational costs to keep public services running.

The most recent and phenomenal case of a region’s survival is the bankruptcy of the city of Detroit in Michigan, US. Michigan Governor Risk Snyder declared the city, which is famous for its automotive industry, bankrupt due to accumulated debts (the Free Press estimated the city’s debt accumulation at US$18.5 billion), public budget inefficiency and the poor quality of government service.

In Indonesia, what happened to Detroit is unimaginable if not impossible, particularly due to opposition from political elites. However, whether or not bankruptcy is legally possible here, facts show that many regency and municipal governments in the country are inefficient or technically almost bankrupt in the view of fiscal aspects and development performance.

Political elites will certainly refuse to declare a region bankrupt but local people, who are most affected by the financial constraints facing a regional government, can feel the administration barely exists and cannot help them. They deem the local government often takes irrelevant action that only saps the regional budget.

Let’s take a look at this issue from the fiscal side. Some of the most crucial problems in this era of autonomy are maladministration, mismanagement and corruption of development budgets.

Maladministration is abvious and visible in the quality of financial reports. In 2010, only 34 regions, or 7 percent of the total number of regional administrations, received unqualified opinions from the Supreme Audit Agency (BPK). In the following year, the figure increased to 67 or 12 percent.

Most regional administrations failed to meet the minimum accounting standards. Bad budgetary government practices to some extent indicate bankruptcy of financial administration quality.

Mismanagement leads to inefficiency in budget allocations. Home Ministry data show that about 290 regional governments allocated more than a half their budgets for civil service spending in 2012, up by 135 percent since 2011 across 124 regions.

Worse, of the 290 regions, 11 regencies/cities saw bureaucracy expenditure account for more than 70 percent of their budgets. Topping the list were Langsa city in Aceh with 76 percent; Kuningan Regency in West Java with 74 percent; Ambon City in Maluku with 73 percent, and the regencies of Bantul in Yogyakarta; Bireuen and West Aceh in Aceh; Klaten and Karanganyar in Central Java; Gorontalo in Gorontalo, and Padang Sidempuan in West Sumatera, each with 70-71 percent.

In 2004-2012, corruption in the regions was found to be rampant in some sensitive areas such as region budget allocations, business licensing, procurement of goods and services and the formulation of regional bylaws, which all involved local elites in the executive and legislative branches of power.

No fewer than 1,500 regional legislative council members, 17 government and 213 regents/mayors were implicated in corrupt practices during the period.

The impact of maladministration, mismanagement and corruption is that local government fail in their efforts to improve people’s welfare, making them technically bankrupt.

Development and public service are obviously in need of budget funds, but with the lion’s share of region budgets spent on bureaucracy, a regional government is practically bankrupt in the eyes of its people. Administrative bankruptcy accurs when the people do not see the relevance of the government, as was the case in the 11 aforementioned regions.

Another source for regional bankruptcy is related to the proliferation of new administrative regions. During the 13 years of decentralization, the formation of new regions has grown at a speedy pace. At the end of the New Order era (1998), there were only 319 regions in the country, but today we have 34 provinces and 505 regencies/cities, including 19 new autonomous regions formed within the last 10 months.

However, the formation of new regions has been proven ineffective as an alternate way to bring in welfare or better delivery of public service to the people. A home Ministry evaluation found that 80 percent of the 205 autonomous regions created after 1998 failed to improve public service quality and people’s welfare. Formation of the new regions instead gnawed at the state budget without providing real benefits for the people.

The government has two choices in responding to this issue. From a technocratic viewpoint, the central government’s intervention to correct and strengthen the regions that are facing bankruptcy must be clear. A special focus on management to repair and save the regions, both fiscally and in terms of government performance, must be carried out.

On the political side, if the central government does not see any concrete initiatives being taken by the endangered regions to improve their performance, liquidation is the answer. The failing regions will then be merged eith their mother regions or other regions that have proven their development capability. In the case, resolute leadership by the President is a must.

So far, the government has looked hesitant, if not afraid, of political resistance from local elites. It seems the central government is playing the politics of ignorance.

The longer the central government refuses to take action, the more protracted and severe will be the impacts of regional bankruptcy on the people.

 

--- (The Jakarta Post – Friday, 20 September 2013 – Opinion) ---

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