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Fiscal Decentralisation and Inclusive Growth in Asia

image of Fiscal Decentralisation and Inclusive Growth in Asia

This report looks at the challenges faced by Asian countries in addressing inclusive growth and fiscal decentralisation. A series of studies examines how policies in the region have evolved in accordance with changes in demography and the economic environment, reflecting country characteristics, history and political economy forces.

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Decentralisation to promote regional development in Indonesia

Indonesia embarked on an ambitious course of decentralisation in 1998. Over a period of a few years, facilitated by financial transfers from the central government, responsibility for many public services and administrative tasks were devolved to local authorities. This process is continuing. Regional development is now very much in the hands of the four sub-national tiers of government. However, the speed of the devolution means that much is being done without the required accompanying skills, technical capacities, resources and oversight. As a result, while good progress has been made nationally along a number dimensions, outcomes in health, education, infrastructure, corruption and the provision of other social services have not improved as quickly as was hoped, and the variance in results across the regions has been considerable. Rather than simply devolving more and more responsibilities to sub-national authorities, the central government could take a more strategic view of regional economic development, monitoring the performance of sub-national governments, providing them with technical assistance where needed, encouraging them to emulate best performers and making use of direct grants. In the longer term the objective should be tax autonomy and transfers based primarily on block grants, although this should be conditional on adequate oversight and sufficient local capacity.

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