Decentralization of Forest Administration in Indonesia, Implications ...

Chapter 3
Origins and Scope of Indonesia’s
Decentralization Laws
John McCarthy, Christopher Barr,
Ida Aju Pradnja Resosudarmo, and Ahmad Dermawan
3.1 Introduction
The Asian monetary crisis first hit Indonesia in July of 1997, and by the end of
that year, the Indonesian currency rupiah had lost 70% of its value. This led to
skyrocketing inflation, massive job losses, and ultimately, failure of the nation’s
banking sector. The depth and enduring nature of the country’s economic instability
sharply undermined the domestic political legitimacy of Soeharto’s New Order
regime, which had presented itself as the ‘engine of economic development’ since
the late-1960s. In May 1998, following several days of violent civil unrest, President
Soeharto was forced to resign after 32 years in office.
The collapse of the Soeharto regime led to widespread calls for fundamental
changes in Indonesia’s system of governance and intense political struggles on a
number of levels. At the national level, much of the political discourse during this
period of transition has focused on ‘reform’ (reformasi), referring to the dismantling
of the vast system of financial and political patronage that Soeharto and his family
built up during their three decades in power. By contrast, in the regions away from
Jakarta, provincial and district-level actors have become increasingly vocal in
calling for ‘regional autonomy’ (otonomi daerah). In some parts of the archipelago
– most notably in Aceh, Papua (formerly Irian Jaya) and East Timor – separatist
movements have waged armed struggles in efforts to gain outright independence
from Indonesia.
Within this context, each of Indonesia’s leaders during the post-Soeharto period
– including presidents B. J. Habibie (1998-1999), Abdurrahman Wahid (1999-2001),
Megawati Soekarnoputri (2001-2004) and now Susilo Bambang Yudhoyono (2004-
present) – has recognized that some form of autonomy for the nation’s regional
governments is an unavoidable tradeoff for maintaining Indonesia’s status as a
unitary republic. As Soeharto’s immediate successor, President Habibie came under
immense political pressure to revoke the New Order regime’s highly centralistic laws
on regional governance (particularly Law 5/1974 on Principles of Governance in the
Regions) and to transfer greater administrative authority away from Jakarta.
Habibie did so by enacting two landmark pieces of legislation: Law 22/1999 on
Regional Governance 1 and Law 25/1999 on Fiscal Balancing. 2 Together, these laws
define Indonesia’s provinces (propinsi), districts (kabupaten), and municipalities
(kota) as autonomous regions (daerah otonom); and, in doing so, they provide the
fundamental legal basis for Indonesia’s decentralization process. In particular, these