Change and continuity in Indonesia's new fiscal decentralisation arrangements

The changes in grant allocation among regions have been less revolutionary than the 1999 decentralisation legislation envisaged because the resource-rich regions were able to force the government to modify the proposed fiscal gap formula for allocating general purpose grants so as to put more weight on the status quo. Partly for this reason, and partly because no major tax was decentralised, there has not been much increase in autonomy for the regions that have few natural resources. In addition, it is argued here that the procedures for grant allocation in 2002 created incentives for regional fragmentation and did not take account of poverty in an appropriate way.