Decentralising to Villages in Indonesia: Money (and Other) Mistakes

Nearly 15years after embarking on its large-scale decentralisation programme, Indonesia has decided to extend its efforts to the village level. Decentralising to villages is intended to improve service delivery performance at the lowest administrative tier and reduce social inequality and poverty. A number of potential difficulties with the design of Indonesia's nascent village decentralisation initiative have already become apparent. Methods used to allocate funds to villages are particularly problematic. Oddly, fund distribution procedures insist to a large extent on equal per village allocations, despite the significant heterogeneity of villages. And they ignore other sources of revenue to which villages have access. In the event, village revenues will be very inequitably distributed: villages with high levels of poverty will receive less money than they need and villages with access to significant funding from oil and gas revenues will receive more than required. Also, village service responsibilities are unclearly defined, village financial management systems are inadequately prepared to handle large increases in funding, and mechanisms to monitor and control village spending are underdeveloped. These difficulties will severely constrain the achievement of official objectives and create further challenges for reformers in their attempts to combat corruption at the subnational level.