DAMPAK KEBIJAKAN DESENTRALISASI TERHADAP PEREKONOMIAN INDONESIA

• Main Author: Sulton Asofyan, Muhammad
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/76044
• Institution: Institut Teknologi Bandung

The "big bang" policy of decentralization in Indonesia emerged in response to the failure of the New Order government to handle the 1998 crisis. Since the reform era, decentralization has brought new hope for more equitable economic growth in the regions. However, the impact of decentralization policies in Indonesia over the past two decades is still questionable while existing studies are limited to discussing aspects of fiscal decentralization only. The political dynamics that occurred in 2020 after the issuance of the Job Creation Law which annulled the licensing authority by the regions under the pretext of facilitating business and investment licensing, gave a tendency for the government to return to centralization, which is a setback for the implementation of decentralization policies in Indonesia. Most recently, in 2022, the decentralization policy in Indonesia was again strengthened by the Law on Central and Regional Financial Relations. Using Synthetic Control Method and Path Analysis, this study aims to examine the impact of decentralization policy over the last two decades. Based on a unit of countries with similar characteristics to Indonesia but not experiencing decentralization policy intervention as Indonesia, SCM constructs the behavior of Indonesia's GDP per capita for the validation or pre-intervention period from 1961 to 2000 and the post-intervention period from 2001 to 2021. Meanwhile, path analysis is used to analyze the relationship of the components of fiscal, administrative, political, and economic decentralization pillars to the intervening variable, GDP per capita, and to the outcome variables: poverty rate, inequality rate, and human development index using provincial units of analysis for the last 10 years. The results show that decentralization policy has a positive and significant effect on economic growth in Indonesia over the last 20 years. The study found that the fiscal decentralization pillar, represented by the transfer to regions per capita variable, plays the largest role in improving the human development index compared to the other decentralization pillar variables. A 1 percent increase in transfers to regions per capita will result in a 4.7 percent increase in HDI. However, there is still an effect of rising inequality caused by the degree of fiscal decentralization variable, although not significantly. The largest impact is also shown by the variable of transfers to regions, which also has the largest role in economic growth and poverty reduction in the regions; transfers to regions per capita increased GRDP per capita and reduced poverty by 44.9 and 21.4 percent, respectively. Meanwhile, the national average DDF over the last 5 years of 0.29 out of 1 indicates that the portion of regional expenditure is funded more by transfers from the center than PAD. DDF is only able to impact on poverty reduction and HDI increase with much smaller coefficients. This finding means that most regions in Indonesia are still not fiscally independent and have a high dependence on transfers from the central government in supporting economic aspects and development in their regions. Thus, there is a need for policies to increase the degree of fiscal decentralization through increasing local revenue, rather than relying solely on transfers from the central government. In addition, the political decentralization pillar also contributes positively to the economy and development. Political decentralization is the pillar that has the most significant effect on reducing regional inequality, at 6.0 percent. However, the other two pillars of decentralization, namely administrative decentralization and economic decentralization of foreign investment, do not have a beneficial impact on Indonesia's economy and development. There is still an effect of increasing poverty and decreasing HDI caused by the variable of local government per capita. This indicates that the existing bureaucracy has not been able to impact economic growth so that improvements in aspects of health, education, and expenditure as measured by the human development index have not been achieved. Then, for the economic decentralization pillar, what needs to be a critical note is that the economic decentralization pillar shown by the foreign and domestic investment realization variable turns out to have the smallest total effect compared to other decentralization pillars. Moreover, there is a negative effect of foreign investment variable on HDI. This indicates that the realization of investment made in the regions so far has not had enough impact on the economy and development in the regions. For this reason, the policy of ease of business licensing and investment needs to be focused on encouraging the increase of local revenue in the locations where investment projects are held so that the impact can be felt more inclusively, rather than solely for the economic benefit of some groups of investors.