• The Local Government Act (No.22/1999) and the closely linked Revenues Allocation Act (No.25/1999) are an interesting and complex mixture of potentially radical and highly conservative elements. As usual with Indonesian laws, they are based on the 1945 Constitution and much depends on subsequent government regulations (PP) which spell out exactly how the various clauses are to be implemented. These regulations must be in place by mid May this year, under the terms of these Acts.

• In any country where there is any local autonomy, there is a distinction between local government and local administration. Typically local government operates within parameters set by central government, but exercises autonomy locally in the way it does it. In local administration the authority comes from the centre to local outposts; i.e. delegation of responsibility. The Revenues Allocation Act makes several references to the distinction between the devolution and delegation i.e. government by the region versus (central) government in the region. During the Suharto era, the highly bureaucratic, hierarchical system of 'local government' was actually no more than local administration – all the decision-making was done by central government.

• Local autonomy generally means more democracy. Local democracy is an essential condition for the devolution or decentralisation of power. There must be strong local institutions which can exert political power, take decisions and be held accountable by the local community for the results. It remains to be seen whether the new system these Acts introduce will have this result. At worst they could create regional fiefdoms where power is concentrated in the hands of local elites.

• Acts 22/1999 & 25/1999 are part of post-Suharto reform measures aimed at promoting democracy and local autonomy while maintaining the integrity of the Indonesian Republic. They were passed by the Habibie interim regime in May 1999. The Explanatory Notes to the Local Government Act make clear that local autonomy is expected to give the regions greater powers and responsibilities over the use of national assets and to change the financial relationship between central and local government. It should be implemented "along democratic lines; with community participation, equity and justice and taking into account the diversity and potentials of the regions." It is also meant to "empower local communities and stimulate creativity." (p54). Throughout the Act references are made to:
  - maintaining the unity of the Republic;
  - promoting economic development;
  - respecting the 'sovereignty of the people'.

• The Acts could be a real move towards local democracy. For example: "local autonomy is the authority of a area authority to organise and deal with provision for the local community through its own initiatives, in accordance with the people's wishes and prevailing legislation and regulations" (Clause 1/h + 4(1), No.22/1999). On the other hand, they only recognise the authority of government officials (local & central) and maintain the existing administrative system village system (camat/luruh/desa). For example: "A village … is a legally recognised community entity which has the authority to control and take care of the needs of the local community according to its origins & culture. It is part of the National Government system………"(Clause 1/o). There are some minor concessions to local culture, such as what villages are called (e.g. nagari, kampong, huta, bori, marga instead of desa). Similarly, local terms can be used for the Village Council (Dewan Rakyat). However, the Acts specify that these must follow the recognised (government) model, not traditional customary forms and laws (adat). In this respect, the 1999 Local Government Act is no advance on the Principles of Local Government Act No 5/1974 and the Village Governance Act No 5/1979 it replaces -both of which are blamed by indigenous peoples for destroying their culture/traditional governance systems.

• Provinces, districts and towns/municipalities will all have greater responsibilities. The Local Government Act's Explanatory Notes (rather than the Act itself) make it clear that local autonomy applies mostly to (rural) districts and major towns (municipalities). The District (kabupaten) and Village (desa) become the basic units of democracy; the provinces will have a more important administrative function. The size of an Autonomous Area is not specified in terms of population, area or income generating potential in Act 22/1999 or 25/1999.

• The Local Government Act gives more power to Local Assemblies (DPRD) as "the local legislative body" and to (provincial) governors. Local Assemblies (DPRD) are seen as the vehicle for democracy at District level. The No. 22/1999 Act lays down their rights and responsibilities in some detail. These include overseeing budgets, drawing up local regulations and issuing official decrees and calling the governor, mayor or district head (bupati) to account. It is not yet clear exactly what Local Regulations the Local Assemblies will be able to draft. None of the details about procedures for Local Assemblies have been specified yet e.g. who can propose action, who can block it or how decisions are made within the Assembly. A glaring omission in the Act is the lack of any instructions about how members of Local Assemblies are to be appointed. This is crucial since these bodies have many powers, including the power to select the Governor and bupatis.

• Many prominent people in the community will be excluded from standing for local government because they were accused of 'crimes' under the Suharto regime and – for village heads - connections with the communist movement. The 'crimes' could include protesting against land appropriation, criticising the president - and in Aceh and West Papua - calling for independence.

• It is not clear from the Acts who will have the authority to decide on local investment by companies. Many conflicts over land and natural resources have stemmed from the Suharto era system whereby the central government allocated concession rights to certain companies – Indonesian and foreign – with no consultation with the local community. This would seem to be a loophole in the new Acts. There appears to be nothing to stop a mining, logging or plantation company coming into an area and doing a deal with the Local Assembly.

• The degree of autonomy that the Districts will have is far from clear. The dividing line between local government and local administration is blurred in several respects. e.g. the position and powers of the provincial Governor. On the one hand, the relationship between provinces and districts or municipalities is no longer hierachical. (Even the old terms of First and Second Level Local Government will be abolished.) On the other, the governor is vested with authority from central government (and the Province is designated the 'Administrative Authority'). Furthermore, Provinces can take over certain roles from Districts/Municipalities which are unable to manage them.

• The Act does not define what makes an Autonomous Area viable. The emphasis on income generation may drive local governments to prioritise short-term natural resource exploitation over long-term sustainable management. Large amounts of this income will be needed to pay for local bureaucracy, formerly funded from central coffers.

• The local autonomy legislation is definitely intended as a means of off-loading some of the huge cost to central government of the country's overblown bureaucracy. It is also intended to generate a flow of revenues from the regions. Land, property, 'development' and natural resources taxes and levies will be paid straight to local government and then divided out between central and local governments. The lion's share of revenues remains in the regions (with the exception of oil & gas). This reverses the current system, whereby all payments are made to central government, which then returns a very small proportion to the regions.

• It is not certain that there will be an overall reduction in the bureaucracy at local level – indeed it may well increase. The new Acts deliberately separate the Local Assemblies (as the legislative bodies) from the local administration. This could create separate parallel bureaucracies at provincial and district levels and/or at district and village levels. Furthermore, there may still be the parallel system of central government and local government staff within one authority (currently Dinas and Kanwil).

• Both the new Acts make repeated reference to checks, controls and supervision of decision-making and finances. There is a much greater commitment to transparency e.g. all Local Budgets, Local Regulations, official decisions and other documents must be publicly available.

• If local autonomy is to have any practical meaning, local institutions must be sufficiently powerful to override decisions taken by central government institutions in the regions e.g. local Forestry Departments/Dinas Kehutanan. There are already concerns that all the important policy decisions will be made by central government, leaving local government merely the implementing role. For example in forestry, all the important edicts on standards, operating methods and practical guidelines for logging companies (juknis, tata cara, pedoman dll) will probably still be set by the Department of Forestry and Plantations in Jakarta.

• The responsibility for natural resource protection (forests, minerals and other aspects of the environment e.g. biodiversity) is far from clear. Overall policy is to be set by central government, but the local authorities now have a statutory duty both to protect natural resources (No 22. Clause 8) and to exploit them as a source of income (No.25. Clause 3). Forestry policy is excluded from the 1999 Local Government Act, but in November 1999, the Minister for Autonomy suggested local governments be given this responsibility (see Jakarta Post 23/11/99). At the time of writing, senior officials in some provinces were still uncertain who would be responsible for National Parks.

• The whole Local Autonomy initiative will be overseen by a council including high-powered Ministers, other central government representatives and local government appointees. There is no provision for input from civil society groups. Very little is said about the authority of this Council which is only mentioned towards the end of the Act. It will report directly to the President, not to parliament. The Ministers for Local Autonomy and Regional Development are not specifically listed as members of this Council (possibly because these were posts created by incoming President Wahid 6 month after the Act was passed.)

• There is an enormous part to be played by non-governmental organisations and community groups in learning about the new Acts and the operating regulations and then making sure that member of Local Assemblies and civil servants understand and implement their new rights and responsibilities. Many of the people in important decision-making positions will have no experience of listening to local communities' wishes or acting upon them. All they had to do during the Suharto era was to follow instructions from central government and call in the security forces if there was any dissent.

• The purpose of the Local Government Act is stated in the Preamble and clarified in the Explanatory Notes to the Act (which also describe some of the constitutional background).
  a) "to bring about local autonomy more emphasis is needed on democratic principles, community participation, equity and justice plus the potential and diversity of the regions."
  b) "local autonomy is necessary in view of national and international developments and threat of global competition….. This will be done by regulating, apportioning and exploiting national resources and through the financial balance between central government and the regions".

• The following terms are defined in Clause 1:

  Central Government: the President + Ministers (state apparatus)

  Local Government: the Head + apparatus of an Autonomous Area (regional executive)

  Local Assembly (DPRD): the regional legislative body

  Local Autonomy: "the authority of an Autonomous Area to control and manage local needs on its own initiatives (which must be) based on the wishes of the people and prevailing legislation."

  (central government) Support Functions (Tugas Pembantuan): duties imposed on local government by central government and by local government on villages for which central government is responsible (including costs and facilities).

  Autonomous Area: "a legally recognised unit of society with defined geographical limits which has the authority to meet the needs of the local community within the framework of the Indonesian Republic."

  Administrative Authority (Wilayah Administrasi): the area under the Governor's control.

  Kecamatan and Kelurahan: sub-district and sub-sub districts as part of the local (District) authority.

  Village (desa): "A village (or the locally used term) is a legally recognised community entity which has the authority to control and take care of the needs of the local community according to its origins & culture. It is part of the National Government system within a District".

  Rural Area: "a predominantly agricultural area, including natural resource management, where villages, government services, social services and economic activities are located."

  Urban Area: "an area where the main activity is not agriculture and where urban settlements, government services, social services and economic activities are located."

• The Act also distinguishes between 'decentralisation' (devolving power from central government to Autonomous Areas) and 'deconcentration' (delegating central government authority to provincial governors as the regional Administrators.
  (Clause 1)

• The Indonesian Republic is divided into Provinces, Districts and Towns/Municipalities which have autonomy. Provinces also function as the Regional Administration.
  (Clause 2)

• All Autonomous Areas (provinces, districts & municipalities) are independent – there is no hierachical relationship between them. However, some responsibilities may be assumed by Provinces if Districts/Municipalities can't handle these.
  (Clauses 4 (2)& 9)

• Autonomous Areas will be established taking into account the strength of the local economy, the "area's potential" (sic), culture, social/political factors, population, area & other considerations. If they don't fulfil these criteria, they will lose their autonomous status and/or be combined with another area. The economic potential & other factors will be determined by government regulations (PP).
  (Clauses 5 & 6)

• An Autonomous Area has authority over all aspects of government except foreign affairs, security, justice, monetary & fiscal policy and areas involving national/macro level policy plans and development controls: the budget, state administration, economic institutions, education & training, natural resource exploitation, strategic high technology, conservation & national standards. Government regulations will be issued on this.
  (Clause 7)

• The decentralisation of power means changes in responsibility for paying for infrastructure & personnel (i.e. roads, schools & local government officials) will have to be funded locally instead of by central government. Where authority is delegated to a Governor ('deconcentration'), central government will pay in accordance with these responsibilities.
  (Clause 8)

• Autonomous Areas must protect national resources in their localities and are responsible for implementing environmental conservation legislation. National resources include natural, constructed and human resources.
  (Clause 10)

• Autonomous Areas also have authority over the sea – including exploration, exploitation & conservation. Districts & Municipalities only control up to one third of the Provincial limit (12 nautical miles from coast – as under international law?)
  (Clauses 3 & 10)

• Districts & Municipalities will have authority over all areas of government (except those in Clauses 7 & 9) i.e. employment, health, education, culture, agriculture, communications, trade & industry, investment, the environment, land affairs, & co-operatives. This will be clarified in subsequent regulations.
  (Clauses 11 & 12)

• Central government may delegate other duties to Autonomous Areas, in which case it will provide staff and facilities locally which are paid for & accountable to Jakarta (i.e. government in the region, rather than government by the region).
  (Clause 13)

• Each Autonomous Area will have a Local Assembly (DPRD) as a legislative body & a Local Government as the executive body. The latter consists of Governor and staff. The Local Assembly is seen as a vehicle of democracy & accountability.
  (Clauses 14 & 16)

• The Local Assembly has the duty and power to:
  - choose/sack the governor, regent & mayor + deputies;
  - choose the local delegates for the Consultative Assembly (MPR);
  - draw up local regulations with the governor & regent/mayor;
  - set local budgets (with governor etc);
  - oversee the implementation of local regulations,
    the governor's decisions,
    budgets, local government policies,
    international co-operation in the region;
  - listen to & take action on local needs.
    (Clauses 18 & 22)

• The Local Assembly also has the right to:
  - carry out investigations;
  - issue public statements;
  - draft local regulations;
  - demand explanations of local or central government officials & local people
    (refusal carries a 1 year prison sentence).
    (Clauses 19 & 20)

• The Local Assembly's responsibilities include:
  - maintaining the unity of the Republic;
  - adhering to the State Doctrine (Pancasila) and the 1945 Constitution.
    (Clause 22)

• The Local Assembly must meet at least 6 times per year. These meetings are to be convened by the Leader of the Local Assembly and will be open to the public (except under special circumstances).
  (Clauses 23 & 26)

• Local Assembly members will not be open to prosecution for anything said in Local Assembly meetings unless they reveal official secrets. Members can only be investigated or dismissed by the Home Affairs Minister (for Provincial Assembly) or the Governor (for District Assembly).
  (Clauses 27 & 28)

• Each Local Assembly has a Secretariat, comprising local government officials whose duty is to help the Assembly carry out its work.
  (Clause 29)

• Each Autonomous Area will have a Leader as the Chief Executive. For Provinces, this is the Governor; for Districts, the Bupati (district head/Regent). The Governor is the representative of the Government and is responsible to the Provincial Assembly. The Bupati is responsible to the District Assembly.
  (Clauses 30, 31 & 32)

• Conditions for becoming a Chief Executive/Head of an Autonomous Area include:
  - never having been involved in anti-state activities;
  - at least secondary education;
  - no criminal record or pending criminal court action.
    (Clause 33)

• The Chief Executive/Head of an Autonomous Area and Deputy are to be selected by the Local Assembly. Each "fraction" of the Assembly can propose 2 people for these posts. A special committee will be established to select candidates. Two-thirds of the Local Assembly must attend the selection meeting for it to be valid.
  (Clause 34 and subsequent clauses)

• The list of candidates for Governor and Deputy must be submitted to the President. The leader of the District Assembly vets the list of candidates for Bupati and Deputy.
  (Clause 38)

• All members of the Local Assembly can take part in the vote. The successful candidates will be sworn in as Heads/Deputies of Autonomy Areas by the President or his representatives.
  (Clause 40 & 42)

• The Head of an Autonomous Area holds office for 5 years and can only stand for re-election once.
  (Clause 41)

• The Head's responsibilities include:
  - maintaining the unity of the Republic;
  - upholding the 1945 Constitution and Pancasila;
  - respecting the sovereignty of the people;
  - improving peoples' standard of living;
  - maintaining law and order;
  - drafting Local Regulations and implementing them
    in conjunction with the Local Assembly.
    (Clause 43)

• S/he must report to the Local Assembly and the President at least once a year (or to the Governor in the case of Bupatis/Mayors). If this report is not acceptable, s/he can be dismissed with 30 days notice unless, s/he provides the Local Assembly with the necessary information within this period.
  (Clause 44, 45, 46)

• S/he is not allowed to:

  be part of any company (private or state/local government-owed) or any charitable foundation;

  take decisions which benefit his/her own family, crony (sic!), group or political party's interests and manifestly act against the public interest, Indonesian nationals or other groups of society;

  do any other work which brings direct or indirect financial advantage in the Autonomous Area;

  receive money, goods and/or services from another party who might influence decisions or actions;

  represent any person or group in a legal case.
    (Clause 48)

• S/he can be dismissed for various reasons (including losing public confidence) if agreed by two-thirds of the Local Assembly and this decision is approved by the President in writing.
  (Clause 49, 50, 55)

• The President can dismiss a Head of an Autonomous Area without consulting the Local Assembly, if s/he is convicted of a crime carrying a 5 year sentence (or more) or if s/he threatens the unity of the Republic.
  (Clause 51, 52)

• The Local Assembly must inform the Head of an Autonomous Area six months before his/her office is due to end and start the selection process for a successor at least a month before s/he leaves.
  (Clause 53)

• A Head of an Autonomous Area who has lost the confidence of the Local Assembly cannot stand as a candidate for the next period of office.
  (Clause 54)

• The procedure for swearing in for the Deputy Head, his/her duties and responsibilities and the circumstances under which s/he can be replaced or take over as Head of an Autonomous Area are laid down in some detail.
  (Clause 56, 57, 58)

• The "Local Apparatus" (lit) comprises the Area Secretariat, headed by the Area Secretary, technical staff and other technical institutions. The Provincial Secretary is appointed by the Governor and the District Secretary by the Bupati, with the agreement of the respective Local Assembly.
  (Clause 60, 61)

• The Local Civil Service (Dinas Daerah) is the executive element of the Local Government. The Head of the Local Civil Service is appointed from the Civil Service by the Head of the Area and answers to him/her. Responsibilities delegated by central government to the Governor are to be carried out by the Provincial Civil Service. There are a number of 'vertical institutions': departments of central government operating locally. Other technical agencies can be established as necessary.
  (Clauses 62 & 65)

• Kecamatan are the executive of Districts/Municipalities (i.e. an administrative sub-district). Each is headed by camat, appointed by the Bupati/Mayor, to whom s/he is responsible.
  (Clause 66)

• Kelurahan are the executive of Kecamatan (sub-sub-districts). The camat delegates authority to the lurah (head of a Kelurahan).
  (Clause 67)

• The Head of the Autonomous Area can make local regulations with the consent of the Local Assembly, as long as these do not conflict with the public interest or other 'higher' regulations. These may determine the amounts of fines payable by a guilty party, sentences up to six months imprisonment (or Rp5 million fines) with possible confiscation of property.
  (Clauses 69-71)

• A Head of an Autonomous Area can issue official edicts/policy decisions in line with Local Regulations and prevailing legislation. These are legally binding and must be made publicly available.
  (Clauses 72 & 73)

• Investigations and charges can be brought under Local Regulations by the relevant officials.
  (Clause 74)

• The Local Authority has the authority to appoint, move or dismiss local civil servants and determine their wages, pensions, allowances and benefits, as well as training, according to rules and regulations (to be specified).
  (Clauses 75-77)

• The costs of the Local Government and Local Assembly will be met from the local budget. Services provided by Central government in the regions will be met from the central budget.
  (Clause 78)

• Income for the Local Budget will come from fees and levies, Regional Allocation Funding (dana perimbangan) and profits from companies or enterprises run or owned by the local government plus loans. The levels of taxes and contributions will be laid down in laws and regulations.
  (Clauses 79 & 82)

• Regional Allocation Funding consists of the portion of national land and development taxes and levies on natural resources due to the regions, plus any general and special allocations (made by central government). These taxes etc will be paid directly to the local government and then divided out.
  (Clauses 79 & 80)

• The local government can negotiate loans from central government or overseas (subject to regulation).
  (Clause 81)

• 'The government will provide fiscal and non-fiscal incentives to promote local autonomy.' These will be specified in forthcoming regulations.
  (Clause 83)

• The local government can set up and own businesses to provide public services.
  (Clauses 84 & 85)

• Local budgets must be formally agreed within one month of the National Budget announcement. There will be regulations governing how local budgets are drawn up, managed and monitored and associated responsibilities.
  (Clause 86)

• Autonomous Areas can work together (as a 'Joint Authority Body') or with certain outside bodies (NB. Not specified) subject to approval by the Local Assemblies of each.
  (Clause 87)

• Autonomous Areas can 'engage in mutually beneficial activities' with overseas agencies/bodies. The rules for such agreements will be laid down by parliament.
  (Clause 88)

• Disputes between Autonomous Areas will be settled by parliament through discussion/mutual consent or, in the final instance, by the Supreme Court.
  (Clause 89)

• Some areas will be recognised as 'Urban Areas', apart from municipalities, under certain conditions e.g. as a result of the development of a rural area. The Local Government must involve the community and the private sector in developing these 'Urban Areas', as part of its commitment to community development.
  (Clauses 90-92)

• Villages can be created, abolished and/or combined if these proposals arise from community initiatives and are approved by the local (district) government and the Local Assembly.
  (Clause 93)

• Each village will have its own administration and village council which together make up the governing authority at village level. This is headed by the Village Head who must be chosen by the inhabitants from a list of suitable candidates. Conditions include being at least 25 years old; no involvement with the communist movement or any other banned organisations; locally well-known; no criminal record; at least primary education. S/he can hold office for a maximum of 10 years and must be sworn in by the Bupati as District Head.
  (Clauses 94-99)

• The Village Head is responsible for playing the leading role in the community, developing the local economy, settling disputes and maintaining law and order. S/he is responsible to the local community (via the Village Council) and reports to the Bupati. The Village Council can recommend the replacement of the Village Head under certain circumstances.
  (Clause 101-103)

• The Village Council, (Badan Perwakilan Desa or whatever it is called according to local tradition) will make village regulations, act as a vehicle for local aspirations and supervise the Village Administration. The members of the Village Council will be selected by and from the local inhabitants. The Council will select one of its member as Council Leader.
  (Clauses 104-5)

• Villages can set up other bodies and their own enterprises.
  (Clauses 106 & 108)

• The Village Budget is derived from village enterprises and community activities (including voluntary work) plus funding from District Government; Provincial Government; 'donations by a third party' (sic); and loans. This is controlled by the Village Head and Council who draw up an annual Village Budget following guidelines set down by the Bupati.
  (Clause 107)

• Several villages can opt to work together as long as the sub-district head (camat) is informed.
  (Clause 109)

• 'The District Authority or any third party planning developments which could change a village into an industrial, settlement or service area must involve the Village Head and Village Council in planning, implementation and supervision'.
  (Clause 110)

• Local Regulations, which must acknowledge and respect the rights, origins and culture of villages, must be set down in accordance with District Regulations which, in turn, are subject to (central) government. The central government will also enact regulations about setting up and supervising measures to promote local autonomy.
  (Clauses 111 & 112)

• The government must be informed of Local Regulations and official decisions by the head of the Autonomous Area within 15 days and has the right to cancel them if they conflict with public interests or other legislation and regulations. Local authorities have the right to appeal to the government and with final appeal to the Supreme Court.
  (Clause 114)

• A Local Autonomy Advisory Council will advise the President on
  - creating, abolishing, combining and extending Autonomous Areas;
  - the financial balance between central and local government;
  - the ability of Autonomous Areas to fulfil their statutory obligations.
  This Council will be made up of the Home Affairs, Finance and State Secretariat Ministers plus other ministers 'as needed', representatives of the Local Government Association and regional representatives appointed by Local Assemblies. It will be chaired by the Minister of Home Affairs with the Finance Minister as Deputy and will meet as least twice a year. The way the Local Government Association will be set up is in the Explanatory Notes to the Act.
  (Clause 115)

• Separate legislation will cover Jakarta as the capital city.
  (Clause 117)

• 'East Timor may be granted special autonomy status' (NB. This law was signed in May 1999 by Habibie – pre referendum)
  (Clause 118)

• The Local Autonomy Law applies to all authorities within Autonomous Areas e.g. ports, industrial zones, mines, forests, tourist areas etc.
  (Clause 119)

• A new civilian police unit will be set up (Polisi Pamong Praja) as part of the local government apparatus to maintain law and order and uphold local regulations.
  (Clause 120)

• The terms Tingkat I & II (First and Second tiers of government) will be replaced by 'Province', 'District' and 'Town'.
  (Clause 121)

• Aceh and Yogya retain their special status, but in other respects this Act still applies.
  (Clause 122)

• Batam, Paniai, Puncak Jaya, Mimika and Simeulue can all become Autonomous Areas.
  (Clause 125)

• All municipalities, districts and 'administrative towns' must change their status to districts/towns (in the meaning of this Act) within 2 years. They can be abolished if they do not conform with the requirements to become Autonomous Areas. (NB. These requirements are not specified in the Act or Explanatory Notes.)
  (Clause 125)

• Villages and sub-districts cannot change their official designation (unless they were part of urban areas in 1974).
  (Clause 126)

• All local government representatives (from Governor to Village Head) remain in post unless and until the terms of the new Act apply.
  (Clause 128)

• Several bodies created under the 1974 Act are abolished including the Support Teams for Governors, Mayors and Bupati. Other government agencies in the regions (apart from those for foreign relations, security, justice, finance and religion) now become part of the local government.
  (Clause 129)

• All supplementary regulations pertaining to this Act must be laid down within a year.

• Closing sections: Clauses 131-134

  Signed President Habibie and Minister for State Secretariat, Akbar Tanjung – 7th May 1999.

REVENUES ALLOCATION ACT No. 25/1999

The Revenues Allocation Act is closely tied to the Local Governance Act (No.22/1999). As usual, most of the details will be specified in forthcoming government regulations (PP). The Act distinguishes between the 'De-concentration', 'Decentralisation' and 'Support' aspects of the relationship between central and local government, but these are no where clearly defined.
• The main aim is to change the division of financial income and responsibilities between central and local government. This is all part of the government's commitment to decentralisation, local autonomy and democracy. The term Autonomous Area (also used in the Local Governance Act) refers, in effect, to District and Municipal administrations. (Clause 6, 7 & 8 and the Explanatory Notes on these contain the main substance of this Act).

• The following terms are defined (in Clause 1):

  National Budget (APBN) Financial planning of the state's income and expenditure;

  Local/Regional Budget (APBD) Financial planning of an Autonomous Area's income and expenditure;

  Regional Allocation Funding (Dana Perimbangan) Part of the National Budget allocated to the Autonomous Areas to fund decentralisation;

  Regional Loans (Pinjaman Daerah) Any loans made to Autonomous Areas (except short-term commercial loans);

  Delegated Budget (Anggaran Dekonsentrasi) Part of the National Budget allocated to Autonomous Areas and villages as central government support;

  General Allocation Funding (Dana Alokasi Umum) Part of the National Budget allocated to even out disparities in spending needs between Autonomous Areas;

  Regional Documents (Dokumen Daerah) All Local Authority documentation which is in the public domain;

• The local government must pay all costs associated with the decentralisation of responsibilities from its Local Budget, except for central government functions implemented at Provincial, Autonomous Area or Village level.
  (Clause 2)

• Local Income (Pendapatan Asli Daerah) refers to all revenues generated from local taxes and levies and income from ventures owned by local government.
  (Clauses 3 & 4)

• The levels of local taxes and levies will be set by (national) legislation.
  (Clause 5)

• Regional Allocation Funding is made up of :
  - The Autonomous Area's portion of Land and Property Taxes
    (Pajak Bumi dan Bangunan)
    Planning Permission Fees (Bea Perolehan Hak atas Tanah dan Bangunan)
    and income from natural resources;
  - General Allocation Funding;
  - Special Allocation Funding ;

• State income from Land and Property Taxes will be split 10% to central government and 90% to Autonomous Areas.
  Planning Permission Fees will be split 20:80, central: local
  10% of Central government's portion of Land and Property Taxes and 20% of its portion of Planning Permission Fees will be divided between Districts and Municipalities

• State income from natural resource (forestry, fishing and mining) will be split 20:80, central: local.
  For forestry the 80% local portion of Forestry Concession levies (IHPH) and Forest Produce fees (PSDH) will be split 16% to Provincial Administration and 64% to the District/Municipal Administration.
  For mining the 80% local portion of Land Rent will be split 16% Province : 64% District/Municipality. The royalties on exploration and exploitation will be split 16% Province : 32% District/Municipality where the mine is : 32% to other District/Municipalities in the Province.
  For fisheries 80% of Fisheries Permits and Catch Fees will be divided equally between all District/Municipalities in Indonesia.

• State income from oil will be split 85:15, central: local. The local government portion will be further split 3% Province : 6% District/Municipality where the oil is produced : 6% to other Districts/Municipalities in the Province.

• Natural gas revenues will be split 70:30, central: local. The local government portion will be split 6% Province : 12% gas-producing District/Municipality : 12% other Districts/Municipalities in the Province.

• General Allocation Funding will be at least 25% of State income and will be split 10% to Provinces and 90% to Districts/Municipalities.

• General Allocation Funding for a Province is calculated by a formula involving the allocation for provincial funding in the National Budget, and the provincial government's funding needs (sic). The latter is to be determined 'through empirical studies' taking into account the population, area, geographical location and local incomes in each province. This is balanced against 'the local economic potential', to include industry, natural resources, labour and Gross Regional Domestic Product.
  (Clause 7 & notes)

• Special Allocation Funding is provided by central government to Autonomous Areas (to meet 'special needs' i.e. unusual circumstances or national priorities e.g. transmigration, new roads in isolated areas, irrigation/drainage canals. It includes the Reforestation Fund - contributions will be split 40% to the producer Area : 60% to central government.
  (Clause 8 & notes)

• Autonomous Areas can borrow money to balance their budgets. Overseas loans must go via central government. Long-term loans should provide facilities which become public assets and which enable repayment. They can be from public or private sources. Loans must be approved by the Local Assembly and published for public information. Limits on local government borrowing will be set. Repayment of loans must be prioritised in the Local Budget.
  (Clauses 11 – 15)

• In emergencies Autonomous Areas can draw on central government Emergency Funding.
  (Clause 16)

• Funding for 'de-concentration' will be channelled to government and non-government agencies via the Governor. S/he is directly responsible to central government for this. 'De-concentration' funding must be administered separately from 'Decentralisation' funding. It is not part of income in the Local Budget.
  (Clause 17)

• Support Funding will be channelled to Autonomous Areas and Villages by the relevant government and non-government agencies and must be administered separately from Decentralisation Funding.
  (Clause 18)

• All income and expenditure involved in 'Decentralisation measures' must be included in the Local Budget (i.e. everything not covered by De-concentration or Support Funding). The notes only give the example of local contributions for village clinics. Local Budgets must be set within a month of the National Budget and made publicly available.
  (Clauses 19 – 23)

• The Chief Executive must report on all Decentralisation Funding to the Local Assembly which may reject this report or ask for further clarification.
  (Clause 24)

• The central government will operate an information system on Local authority finances. This data will be open to public access.
  (Clause 27)

• The Secretariat of the Regional Allocation Section will make recommendations to the Local Autonomy Allocation Council on financial relations between central and local government and other issues related to local government finance.
  (Clause 29)

• For a two-year transitional period, the National Budget can allocate decentralisation funding outside the Local Budgets. This is intended to smooth the changeover between the old and new systems, to allow projects which have started, to continue and to reduce gradually the contribution of central government to the regions via technical departments. All ministers of 'technical departments' must compile an annual report detailing all projects and activities carried out by local and central government and non-government agencies. These reports must be presented to Parliament.
  (Clause 31)

Signed President Habibie, State Secretary Prof. Muladi. 19th May 1999.