Welcoming two decades of decentralization in Indonesia: a regional development perspective

Since the start of the reform in the late 1990s, Indonesia has implemented an ambitious decentralization policy. One of its aims is to foster regional development from below by giving subnational governments a greater discretion in determining programmes that are more aspirational to the interests of the community and to local and regional development objectives. The decentralized government system has been implemented for almost two decades, yet limited studies have been conducted to examine its trajectory. Within this context, the study offers a comprehensive review of two crucial issues in the empirical literature on decentralization, notably regional disparity and spatial fragmentation. It is found that the rapid transition toward a decentralized system during the early years of the decentralization reform had an adverse impact on regional development. However, after several adjustments and improvements throughout the process, the decentralization practice in Indonesia began to show positive outcomes, which was signified by a declining trend of regional disparity and spatial fragmentation. It is argued that institutional rearrangement has become a crucial aspect in resolving the regional issues and, thus, improving regional development.