Investment in Indonesia

In: Business and Management

Submitted By zhiching
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Indonesia began a process of rapid government decentralization in 1999 from a formerly strong centralized government structure (Keith Green, 2009). According to Darmawan (2008), under former president Habibie, this reform process was conducted due to the introduction of new decentralization guidance in 2001 under Law 22/1999 on regional governments and Law 25/1999 on fiscal balance between the central and regional governments have changed the intergovernmental relations in Indonesia. Then, they were replaced by Law 32/2004 and Law 33/2004.
The World Bank declared that decentralization is defined as “the transfer of authority and responsibility for public functions from the central government to intermediate and local governments or quasi-independent government organizations and/or the private sector”. Decentralization is also regarded as a way of diffusing social and political tensions and ensuring local cultural and political autonomy (Bardhan, 2002, p. 185). Local governments in Indonesia started to develop and to govern their regions by gaining huge transfer of authority and ability to make their own decision-making from central government with these laws.

Indonesia begins with the components in political decentralization and then move forward to fiscal decentralization and finally the administrative decentralization. According to Cheema, Nellis and Rondinelli (1999), political decentralization aims to give citizens or their elected representatives more power in public decision-making. It is used typically by political scientist interested in democratization and civil societies to identify the transfer of decision-making power to lower-level government units or to citizens or their elected representative. For instance, regions have to set new regulation to implement those newly empowered authorities.

Fiscal decentralization enables local…...

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