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THE ADOPTION OF URBAN MANAGEMENT POLICY INNOVATIONS IN INDONESIAN LOCAL GOVERNMENTS: A STUDY OF INNOVATION

ADOPTION

by

Leksono Probo Subanu

A Dissertation submitted to the faculty of The University of North Carolina at

Chapel Hill in partial fulfilment of the requirements for the degree of Doctor of

Philosophy in the Department of City and Regional Planning

Chapel Hill

1996

Approved by

Edward j . Kaise

Advisor

Reader

DavidFpGoaschalk

eader

Linda Lacey

T)*U. C ^DeifS. Wrig

Rayrffond J. Burby III

Reader

Reader



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UMI Number: 9730611

Copyright 1996 by Subanu, Leksono Probo

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©1996

Leksono Probo Subanu

ALL RIGHTS RESERVED

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LEKSONO PROBO SUBANU. The Adoption o f Urban Management Policy

Innovations in Indonesian Local Governments: a Study o f Innovation Adoption. (Under the direction of Edward J. Kaiser)

ABSTRACT

In Indonesia, a large country experiencing unprecedented urban growth,

the responsibility for conducting urban management tasks is increasingly being

devolved to local governments. However, they have not been endowed with

capacities and resources that sufficiently enable them to respond well to urban

development problems and challenges. Although central government programs

to enhance local government capacities have been implemented, there is a lack

of empirical studies on how and why local governments conduct urban

management practice in the past. Such studies can be expected to provide

empirical bases for the formulation of policies and programs to promote sound

urban management practice.

This study attempts to fill the void by investigating factors that influence

the adoption of urban management policies in Indonesian local governments.

Using a conceptual model developed to study policy innovation adoption by

American local governments, this study is intended: (1) to test whether the model

is able to reveal factors that affect innovation adoption in local governments in

Indonesia; (2) to provide empirical evidence that the adoption of urban

management innovations by local governments in Indonesia are influenced by



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iv

environmental and internal organizational factors; and (3) to contribute to the

formulation of policies and programs that attempt to enhance urban management

practice by local governments in Indonesia and to initiate an urban management

research agenda.

This study uses a sample of 40 local governments in the provinces of

Central Java and Yogyakarta. Path analysis is employed as the primary

analytical tool, and factor analysis is used to overcome problems in the primary

analyses. This study finds that the theoretical framework is only partially relevant

and needs to be further corroborated in future research. The model shows that

local government organizations are strongly influenced by the characteristics of

their communities. The adoption of different types of urban management

innovations (bottom-up innovations, top-down innovations, and corporate

innovations), however, are differently affected by the explanatory factors

(community environment, organizational environment, and organizational

characteristics). Future policies on urban management in Indonesia should take

into account community characteristics and have sufficient emphasis on

enhancing staff capacities and expanding local government access to resources.



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V

ACKNOWLEDGEMENTS

The completion of this dissertation would not have happenned if not for

the moral, spiritual, financial, as well as substantive contributions of a number of

people. First of all, the strong conviction of my beloved father and mother of the

Divine intervention inspired my belief that the completion of this project is

possible although times innumerable it seemed impossible. I owe them this

belief as much as I owe them my very life and the nurturing love they have

poured on me since babyhood.

Substantively, I am deeply indebted to Ray Burby, who has given me his

time and thoughts, and most important, his confidence and friendship throughout

the years that it took to develop an acceptable dissertation topic. I am grateful to

Edward Kaiser who have been very supportive in finding solutions to problems

standing in the way of the timely completion and defense of this dissertation, to

the point of willingly taking the responsibility of the chairmanship of my

dissertation committee late in the process. I am also thankful for the

contributions of the other members of my dissertation committee David

Godschalk, Linda Lacey, and Deil Wright, who were willing to take up the

reading and insightfully commenting on my dissertation so close to the holidays.

Financially, I am indebted to the World Bank XVI Education Project under

the auspices of the Department of Education and Culture of the Republic of



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vi

Indonesia, for providing 3 years of scholarship to fund my residence at the

University of North Carolina at Chapel Hill from 1988 through 1992. In 1994,

thanks to the good graces of Dr. Haryadi, the Center for Environmental Studies

at Gadjah Mada University provided a 3-month scholarship at the University of

Waterloo, Canada, where the present form of the study was developed. The

Center for National Development Planning Studies and the Graduate Program in

Urban and Regional Planning at Gadjah Mada University partially but

significantly supported the field work needed for data gathering during 1995 and

the first half of 1996. Colleagues from the two institutions provided valuable

intellectual and moral support for the completion of the surveys, although they

also sometimes tempted me successfully to take time away from dissertation

work to spend time on other and, unfortunately, sometimes more interesting

pursuits in research and consultative work. Finally, a philantrophist, who does

not want to be named, provided the scholarship necessary to get me away from

the crushing responsibilities at Gadjah Mada University for an intensive six-

month period of writing-up and completing this work. I truly believe that his

contribution is an ultimate manifestation of the Divine intervention that my

parents so strongly belief in. I must not forget to mention the contribution of

Mitchell Lyman, who had so kindly provided me with a home away from home,

motherly support, and loving friendship which I truly needed during my down

times, and for which I am deeply grateful.



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The role of my loving wife, Dewi, and our three children, Dindit, Dion, and

Restri, I acknowledge last but certainly not least. In retrospect, the long periods

of time they have had to endure without their husband and dad, were truly trying,

especially for my beloved wife, who had to be mom and at once dad for the

children while I was away. Without their pain and suffering, this project would not

have been possible. But, indeed, this project would have been meaningless if

not for them. Nothing can begin to describe my indebtedness to my beautiful and

loving wife for the love and support she has so richly poured upon me and for

enduring staunchly the trials and tribulations of being a PhD student “widow"

with three growing kids to raise for seemingly endless periods of time. To her,

our children, and my beloved parents I dedicate this work.



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TABLE OF CONTENTS

Page

List of Tables....................................................................................................xi

List of Figures................................................................................................. xiii

List of Abbreviations....................................................................................... xiv

Chapter page

1. INTRODUCTION AND PROBLEM STATEMENT

1.1 Background....................................................................................11.2 Issues and Objectives of Study.....................................................4

1.3 A Definition of Urban Management...............................................6

1.4.1 The Roles of Urban Management.....................................121.4.2 The Role of Local Governments in Urban Management.. 15

1.4.3 Urban Management as Innovation....................................161.4 The Approach of Study.................................................................181.5 Organization of the Study Report................................................19

2. THE LOCAL GOVERNMENT IN INDONESIA

2.1 National Government....................................................................212.2 Territorial Government................................................................22

2.2.1 Local Government Act.......................................................23

2.2.2 Decentralization................................................................ 272.2.3 Local Finance.....................................................................30

2.2.4 Local Government Apparatus............................................322.2.5 Central-Local Relations.....................................................342.2.6 Local Policy Making ..........................................................38

2.3 Conclusions..................................................................................42

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ix

3. URBAN MANAGEMENT INNOVATIONS IN INDONESIA

3.1 The Evolution of Urban Management in Indonesia ...................44

3.2 Innovations in Urban Management............................................. 48

3.3 The Pattern of Innovation Adoption............................................543.4 Conclusions..................................................................................61

4. REVIEW OF INNOVATION LITERATURE

4.1 A Definition of Innovation ........................................... 65

4.1.1 Innovation as Adoption......................................................67

4.1.2 Innovation as Process.......................................................674.1.3 Organizational Innovativeness..........................................69

4.2 Classification of Innovations........................................................71

4.3 Correlates of Innovation ..............................................................73

4.3.1 Internal Factors.................................................................73

4.3.2 External Factors................................................................76

4.3.2.1 Community Environment......................................77

4.3.2.2 Organizational Environment.................................80

4.3.2.3 Policy Demand.....................................................81

4.4 An Integrative M odel...................................................................82

5. CONCEPTUAL DEVELOPMENT AND RESEARCH METHODS

5.1 Selection of Units of Analysis......................................................89

5.2 The Dependent Variable: Policy Innovation...............................93

5.2.1 Measures of Policy Innovation..........................................96

5.2.2 Classification and Reduction of Indicators ......................102

5.3 The Independent Variables.......................................................117

5.3.1 Community Environment.................................................118

5.3.2 Policy Demand................................................................ 122

5.3.3 Organizational Characteristics........................................123

5.3.4 Organizational Environment............................................ 126

5.4 Study Methods and Revised Model...........................................1295.4.1 Bivariate Analysis ............................................................129

5.4.2 Multivariate Analysis .......................................................130



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6. ANALYSIS AND FINDINGS6.1 Bivariate Analysis......................................................................138

6.2 Multivariate Analysis..................................................................141

6.2.1 The Problem of Multi-collinearity....................................1426.2.2 Reduction of the Independent Variables........................145

6.2.3 Path analysis Results......................................................1486.3 Discussions...............................................................................155

6.3.1 The Dependent Variable ................................................156

6.3.2 Path Analysis Findings................................................... 159

6.3.3 Relevance of the Model.................................................161

7. SUMMARY AND CONCLUSIONS7.1 Summary of the Disssertation...................................................169

7.2 Implications of the Dissertation ................................................1757.2.1 Implications for Policy....................................................1757.2.2 Implications for Theory...................................................1787.2.3 Implications for Further Research..................................180

APPENDICES Appendix A.

Sketch Map of Local Governments in the Provinces of Central Javaand Yogyakarta...........................................................................188

Appendix B. Adoption Rates for Selected Innovations............................................189

Appendix C.

Table C1 Partial Correlation Coefficients between Dependent andIndependent Variables, Controlling for Type of Community 198

Table C2 Results of the Final Regression on the Individual

Innovation Variables...................................................................199

REFERENCES..............................................................................................201



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xi

LIST OF TABLES

Table 1.1: Conceptions of Urban Management........................................... 10

Table 2.1: Official Names and Official Titles of Heads of Territories 25

Table 3.1: Innovations under Study, Their General Substantive Areas and the

Year They were First Adopted................................................... 49

Table 3.2: Curve Fitting Test Results.......................................................... 59

Table 5.1: Test of Difference of Means Between Sample Units in the

Provinces of Central Java and Yogyakarta.............................. 92

Table 5.2: Test of Difference of Means Between Regencies and

Municipalities in the Sample...................................................... 93

Table 5.3: List of Local Governments in the Sample.................................. 94

Table 5.4: Year of Adoption of Each Innovation by Each Local

Government............................................................................... 97

Table 5.5: Innovation Scores for Each Local Government....................... 103

Table 5.6: Categories of the Innovations.................................................. 105

Table 5.7: Correlation of Indicators of the Dependent Variables.............106

Table 5.8: v'arimax Rotated Principal Component Factor Analysis of

Indicators for the Dependent Variables................................... 112

Table 5.9: Variables Loading on the New Dependent Variables..............117

Table 5.10: Constructs, Concepts, and Indicators ..................................... 128

Table 5.11: Summary of Hypotheses on Bivariate Relationship............... 129

Table 6.1: Correlation Coefficients between Dependent and

Independent Variables............................................................ 139



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Table 6.2: Collinear Relationship Among Variables Included in Path Analysis Regression Equations...............................................143

Table 6.3: Varimax Rotated Principal Component Analysis on

Independent Variables............................................................146

Table 6.4: Standardized Regression Coefficients of Path Model............. 148

Table 6.5: Adjusted Standardized Path Coefficients................................ 151

Table 6.6: Effects on Adoption of Bottom-Up Innovations........................ 152

Table 6.7: Effects on Adoption of Top-Down Innovations........................ 153

Table 6.8: Effects on Adoption of Corporate Innovations......................... 154

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LIST OF FIGURES

Figure 2.1: Simplified Diagram of Governmental Structure.........................26

Figure 4.1: Integrated Model of Policy Innovation in Local Governments.. 83

Figure 5.1: Causal Model of Policy Innovation in Local Governments.......131

Figure 5.2: Structural Diagram of the Causal Model..................................136

Figure 6.1: Adoption of Bottom-Up Innovation Path Coefficients..............152

Figure 6.2: Adoption of Top-Down Innovation Path Coefficients...............153

Figure 6.3: Adoption of Corporate Innovation Path Coefficients...............151



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xiv

LIST OF ABBREVIATIONS

INPRES Instruksi Presiden (President’s Instruction)

IUIDP Integrated Urban Infrastructure Development ProgramMFP Municipal Finance Project

SDO Sumbangan Daerah Otonomi (Autonomous Territory Subsidy)UN United Nations

UNCHS United Nations Center for Housing StudiesUNDP United Nations Development Program

USAID United States Agency for International Development



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CHAPTER 1

INTRODUCTION AND PROBLEM STATEMENT

1.1 Background

The urban population in Indonesia is rising rapidly at about 5 percent

annually. By some moderate estimates, it is expected that Indonesia’s urban

population will increase to 76 million, or about 36 percent of the total population,

by the year 2000. This implies that urban areas will have to absorb about 2.2

million residents per year (Sidabutar, 1992).1 This rapid pace of urban growth

exerts considerable demands on the ability of the government to provide proper

urban services, including housing, education, transportation, sanitation, health,

and, not least, employment. In response to this challenge, since the mid 1980s,

the role of local governments in the provision of urban services more and more

has been emphasized by the central government, in part by giving them more

responsibilities in planning, constructing, financing, and maintaining of urban

infrastructure through the so-called Integrated Urban Infrastructure Development

Program (van der Hoff and Steinberg, 1992). This shift toward a bigger role of

1This includes not only migrants coming into existing urban areas, but also population of

areas becoming urbanized as classified by certain demographic, physical, and public facility standards.



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local governments in the provision of urban services highlights the importance of

accelerating the process of decentralization of public service affairs to the local

governments.

The concept of urban management in Indonesia was introduced in the

context of the urban infrastructure development efforts mentioned above. Within

this context, urban management appeared to be understood as an effort to

integrate diverse resources towards the achievement of city development

objectives through planning, programming and budgeting development,

operation, and maintenance of an urban settlement (van der Hoff and Steinberg,

1992).2 These efforts were pursued in three areas: urban development policies

and projects in the framework of decentralization; strengthening of institutional

capacities and institutional change and reforms; and manpower development

through training programs.

In the last decade or so, at least two major approaches to the

enhancement of urban management capacities have been launched. One is the

aforementioned Integrated Urban Infrastructure Development Program, under

the direction of the Department of Public Works. The other is the Municipal

Finance Project, under the auspices of the Department of Finance. While the

first was primarily focused on physical urban development (with the

2 This broad understanding of urban management seems to reflect the underlying

problem of fragmentation of policies and resources for urban development which exist in

Indonesia.



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roads and rain water drainage systems, the control of physical development

through the granting of building permits, the cleaning o f streets and management

of household waste, the provision of health and geriatric services, the

management of public transportation systems, and so forth. These are practices

that already exist in varying degrees in local governments and can be subjected

to studies to understand how and why changes occur.

1.2 Issues and Objectives of Study

There are at least three issues that need to be addressed in connection

with the on going efforts to promote sound urban management practice in local

governments in Indonesia. The first is the lack of empirical studies that can

provide basic knowledge to guide policies in promoting better urban

management practices. As urban management is a relatively new concept that

was introduced in the context of central government efforts to develop local

government capacities to carry out urban development tasks in an integrated

manner, the lack of empirical studies o f urban management reflects the high

regard policy makers place on the concept as an answer to a long-standing

problem in urban development. For policies promoting better urban management

practice to be more successful, however, there is need for empirical knowledge

about how and why local governments adopt and perform urban management

tasks. This is the second issue that needs to be addressed. Studies that

investigate what factors influence the adoption of policies and programs in urban



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management at the local government level should provide insights into more

effective ways for higher level governments to promote sound urban

management practice in local governments. The third issue is related to

research methodologies and concepts that have been used in organizational

and local government research found in Western literature. Such methodologies

have been successfully used in investigating local governments working under

the political context of Western countries, particularly the United States.

Successfully using similar methodological approaches and theoretical constructs

to investigate local governments in a different political context would suggest the

universality of their application across political boundaries.

The three issues mentioned above are closely interrelated and can thus

be addressed simultaneously. This study addresses these issues by (1)

contributing the first systematic study of urban management in local

governments in Indonesia, that (2) attempts to explain internal and external

factors influencing the adoption of urban management policies by local

governments in Indonesia, by (3) using research constructs and methodologies

already found to be useful in Western literature. As a pioneering empirical study

of urban management policies in local governments in Indonesia, this study can

serve as a springboard for further studies and discussions of urban management

in local governments in Indonesia.

The substantive objectives of this study, related to the above issues, are:



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1. To investigate factors that influence local governments in Indonesia in the

adoption of processes and institutions in performing tasks related to urban

management activities.

2. To contribute to the formulation of policies that enhance and promote sound

urban management practice in local governments in Indonesia, and to the

initiation of an urban management research agenda in Indonesia.

3. To assess the utility of research constructs and methodologies that have

been developed in western political contexts for their application to the

particular social and political setting of Indonesia, a non-western political

context.

1.3 A Definition of Urban Management

Although urban management has been one of the most widely used terms

that describes a variety of responses to rapid urbanization processes in the

developing countries, it has only recently found its way into theoretical literature

(see for example: Devas and Rakodi, 1993; Cheema, 1993). Unfortunately, it

has not received sufficient conceptual treatment as an emerging concept that is

gaining importance among development practitioners and researchers in the

developing countries, instead, it has most often been used as a catch-all term

that describes a variety of activities, tasks, policies or functions of development

institutions dealing with urban development problems in the developing



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countries. Articles that deal with urban management often do not explain

sufficiently the conceptual definition of the term.

Stren (1993:125), for example, calls urban management an "unanalyzed

abstraction," which, despite its increasing popularity among international

assistance institutions and developing country governments, has remained

ambiguous and subjective. Davidson and Nientied (1991:82) identified the

"slightly uncomfortable feeling that now suddenly everything is urban

management." It seems to have been used as a convenient term to represent the

gamut of social, political, financial, environmental, and administrative issues that

formerly lay outside the traditional scope of urban (physical) planning and

development.

Some writers imply that urban management is an extension of urban

(physical) planning (Low, 1979; Tribillon, 1985, as quoted in Stren, 1993). Low

(1979) seems to assert that urban management is a broadened version of city

planning which includes related inter-disciplinary fields. Tribillon (1985) more

narrowly describes urban management as the implementation of urban plans. As

early as 1968, Mabogunje (1968) alluded to urban management in the

conclusion of his book on urbanization in Nigeria. According to Stren (1993:134)

Mabogunje's understanding of urban management wass not far from urban

government: "Urban management, by having been left undefined, is employed in

the analysis as an objective which should be (but for the most part is not)

pursued by local governments in Nigeria."



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Although the early uses of the term emerged in the United States

(Morgan, 1972; Hawley and Rogers, 1974), it is primarily in third world

development literature that the term receives more earnest treatment. However,

the contextual variance between western and developing countries in terms of

economic development situations and the nature of the urbanization process has

resulted in different conceptual treatments of the subject. In Western literature,

on the one hand, urban management has been approached as a tool to counter

declining city growth rates with an emphasis on redevelopment (Davidson and

Nientied, 1991). It should be noted, however, that the term urban management

has not been commonly used to describe responses to urban problems in North

American and European cities (Silver and Yudono, 1994). In the developing

countries, the concept of urban management has been developed under a

context that involves three main elements: "a recognition of the worldwide shift in

population from rural to urban areas (especially in the developing countries); a

re-evaluation of the economic importance of cities; and a re-affirmation of the

significance of local institution building for development" (Stren, 1993:125).

Most articles on urban management in the developing countries have

been shaped by the need of cities and towns in developing countries to catch up

in provision and production of urban services and infrastructure, and to realize

their economic potentials to contribute to national development. The host of

problems that hinder the development of cities in developing countries in that

respect, ranging from corruption to inefficient organizational structures, from low



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staff capacities to shortage of funds, from urban poverty to environmental

damage, and so forth, have shifted the attention of scholars as well as

international donor agencies towards broader concepts, policies, and programs

that focus more on increasing managerial capacities of urban development

actors (Cheema, 1993; Perlman, 1993; Clarke, 1991; Davidson, 1991).

Several authors have described urban management in the context of the

developing countries with different emphases. Their descriptions are

summarized in the Table 1.1. Among the authors compared in this table, Clarke

appears to provide the most coverage of the range of tasks, actors, and

objectives of urban management. However, all the above authors did not

explicitly describe whether the term urban management is understood in its

institutional sense as a discrete organizational unit (such as urban government)

or in its functional sense as a system of activities or processes among relevant

actors designed to achieve certain ends (such as urban planning). Assuming

urban management as an organizational unit would mean that the political

context allows urban jurisdictions to be managed by a discrete unit as a

component of the larger political or administrative system. In a country such as

Indonesia, urban management can not be considered as a distinct

organizational unit, as the administrative system has not provided for the

separation of administration of the urban from the non-urban jurisdiction.

Therefore, at this time, for the purposes of this study, urban management in

Indonesia can only be understood in its functional sense as a system of activities



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Table 1.1 Conceptions of Urban Management

Davidson Sivarama Cheema & krisnan &

Nientied Green

(1991) (1986) (1993)

Clarke Davey

(1991) 1993)

Urban Management Tasks

• development, management, and

coordination of resources

• design and implement policies:

planning and budgeting for

investment in urban services

• routine provision of urban

services and infrastructures

• management of assets and

services: implementation,

operation, maintenance and

rehabilitation of urban physical

and social sen/ices

• improvement of urban

institutional capacities

• regulatory framework for public

services- transport,

communication, land

development, building, business,

and collection of taxes and

revenues

• governance: basic relations between levels of government

with regard to allocation of

responsibilities and resources.

Urban Management Actors

• allocation of responsibilities

between public and private

sectors in provision of public

services

• the role of the informal sector

Objectives of UrbanManagement

• achieving the city's development objectives

• meet rising demands from

population growth

• increase effective access of the

poor to urban resources and

services

X

X

X

van der Hoff and

Steinberg

(1992)

X

X

X



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and processes among relevant actors to achieve certain ends. Indeed, some

authors’ conceptual definitions imply that the biggest challenge in urban

management is the building of an effective system of activities among actors,

that are traditionally fragmented over a range of institutions, that is able to

coordinate the disparate actors to achieve common objectives (Davidson and

Nientied, 1991; Clarke, 1991; Cheema, 1993).

For the purposes of this study, urban management is defined as a system

of activities or processes that involve public as well as private actors and

institutions directed towards achieving the goals and objectives of development

of a geographic and administrative unit having urban characteristics. The

achievement of urban development goals and objectives entails carrying out in a

coordinated manner (among public and private actors and institutions involved)

the strategic (policy formulation, planning, budgeting) and technical

(implementation, operation, maintenance, and rehabilitation) tasks of providing

the necessary urban services (housing, employment, education, health,

transportation, cleaning, safety, etc.), enacting and enforcing a regulatory as

well as administrative framework in which such service can be carried out in a

financially sustainable manner, and providing governmental services and

maintaining proper relationships with other institutions within the framework of

the governmental system.

The above definition of urban management encompasses the scope of

the institutions and regulations included in this study, although it is not



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necessarily a final definition of the subject. To better understand the meaning of

the term as used in this study, the perceived roles of urban management in the

context of urban development in the developing countries are discussed below.

1.3.1 The Roles of Urban Management

The world has urbanized at a rapid rate during the past four decades

(Cheema, 1993; Perlman, 1993; Stren, 1993; Clarke, 1991). According to a

United Nations report (UN, 1986), in 1970, 37 percent or 1,371 million people

lived in cities. Of those, 673 million or 49 percent lived in cities in the developing

countries. It is expected that in the year 2000, world urban population will reach

2,854 million (47 percent of total population), of which 67 percent or 1,904

million will live in developing country cities. World urbanization levels will reach

about 60 percent in the year 2025, with 3,845 million people living in cities in the

developing countries, comprising 78 percent of all urban population (UN, 1986).

Although the expected annual increase of urban population in developing

countries does not seem significant (3.5 percent annually between 1970 and

2000, and 2.8 percent between 2000 and 2025) when compared to growth rates

of some of the largest urban areas, the sheer numbers of new people to be

accommodated in those cities are dramatic. According to one estimate, 140,000

people will be added to cities in developing countries every day (Perlman, 1993:

19).



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The so called urban explosion (Perlman, 1993: 23) is happening for the

most part in the cities of the developing countries that are ill-equipped to handle

large increases in population. Indeed, those cities are already facing great

difficulties in coping with environmental, social, and economic problems brought

about by rapid urbanization (Cheema, 1993; Davidson and Nientied, 1991,

Clarke, 1991). These problems include: an increasing incidence of urban

poverty, inadequate access to housing and such basic services as primary

health care and water supply, the proliferation of slums and squatter settlements,

and urban environmental degradation (Cheema, 1993: 4).

But national economic growth in most developing countries is becoming

more and more dependent on the ability of urban centers to perform crucial

functions within the macro and regional economies and to lead the development

effort (Clarke, 1991: 93). A recent World Bank report cited by Perlman (1993:

25) states: "In 1989, about 60% of gross domestic product in most developing

countries was generated in cities . . . [and] about 80% of GDP [gross domestic

product] growth is expected to occur in these cities." Cities in developing

countries, especially the large ones, play a vital role in the national economic

development of each country. Indeed, the future economic growth of developing

countries is contingent on the efficient functioning of cities (Davidson and

Nientied, 1991).

It seems clear that what is needed by many developing countries is a set

of policies and strategies that recognize the inevitability of urbanization and



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wholly support the cities in coping with the burden of social, economic, and

environmental costs they have to pay for receiving the large part of national

industrial investments and urban population growth. Those would include

provision of essential services such as housing, water, sanitation, transportation,

and communications, without which congestion and decay can substantially

reduce the cities' capacity to play their important economic development roles.

The emergence of urban management as an important concept has

evolved from years of development policies that were primarily physical in

nature. The World Bank has been quite active in sponsoring urban development

projects in developing countries since 1972. After a decade of sponsoring

projects that were primarily physical in nature, the World Bank realized the

importance of efficient urban management, although "its importance as a

prerequisite for productive urban economic activities is not fully appreciated" as

yet (World Bank, 1983:51). The World Bank subsequently conceded that good

urban management is a necessary condition for productive urban economic

activity. It suggests, in a study of development in sub-Saharan Africa, that the

conditions for higher productivity and growth necessarily include sharp

improvements in institutional capacity (Stren, 1993:129).

The importance of urban management in the development of cities in

developing countries was further amplified by the establishment of the global

Urban Management Program, a ten-year program, begun in 1986 jointly by

UNDP, the World Bank, and UNCHS (Habitat) with contributions from several



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industrialized countries. The long-term objective of the Urban Management

Program is to "strengthen the contribution by cities in developing countries to

economic growth, social development and the alleviation of poverty," while the

more immediate objectives are "to improve urban policies, programs and tools in

the selected high priority areas of urban land management, infrastructure,

municipal finance, and environment" (Clarke, 1991:97-8).

1.3.2 The Role of Local Governments in Urban Management

An important dimension of urban management that has been emphasized

by all writers in urban management is decentralization and the role of local

governments (Clarke, 1991; Davidson and Nientied, 1991; Cheema, 1993; van

der Hoff and Steinberg, 1992; Stren, 1993). Arguments for decentralization of

government to the lower levels of the administrative structure in the developing

countries are abundant in the development literature (for example, see

Mawhood, 1983; Cheema and Rondinelli, 1983). Many governments of

developing countries have committed themselves to decentralization even

though a variety of problems still hinder the implementation of decentralization

policies.

With respect to the emergence of the concept of urban management in

the developing countries, Stren (1993:129), for example, has emphasized the

on-going shift towards more local institutions as the focus of attention, relating to

popular expression of “think globally, act locally.” Cheema (1993) identifies the



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need for improved financial structure and management at the local level and

strengthening of urban institutional capacities, which are primarily functions

within the local government bureaucracy. The Urban Management Program,

mentioned earlier, places strong emphasis on the promotion of devolution of

management responsibilities to local governments and the utilization of the

private sector, both formal and informal (Clarke, 1991). In the context of the

Integrated Urban Infrastructure Development Program in Indonesia, stronger

roles of the local governments in urban management are promoted to overcome

coordination, financial, and operational problems of urban infrastructure

provision and production (van der Hoff and Steinberg, 1992).

Local governments in developing countries need to enhance their

performances in various fields of development administration. This, in turn, will

compel them to introduce changes or improvements in procedures, processes,

tools, and institutional structures to be able to meet the challenge.

Innovativeness of local government organizations (as well as private, non

governmental, community organizations) is thus a prerequisite for urban

management.

1.3.3 Urban Management as Innovation

An innovation has been defined as a new idea, method, device, or

procedure, introduced into an ongoing system (McGarth, 1985). (The definition

of an innovation will be elaborated later in Chapter 4.) Almost by definition,



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especially in the developing countries, urban management is an evolving

innovation. Even as the concept of urban management is still in the process of

converging, as discussed earlier, tasks, functions, and programs that have

emerged under the label of urban management have been mostly new to the

local government adopting it. Indeed, for local governments in developing

countries, such as Indonesia, to be able to perform sound urban management

practice, a good many innovations in the form of new regulations, new

procedures, new institutions, and so forth, are needed.

Recent writing on urban management in developing countries have

stressed the need for innovations at various levels if the challenges of urban

management are to be met (Cheema, 1993; Devas, 1993; May, 1989). The

variety of innovations in urban management that have been adopted or

proposed is endless. It ranges from technical innovations such as the use of

separate bins for different types of trash, the use of computers in the

administration of taxes and fees for urban services, to administrative innovations

such as the creation of a new local department that deals with the collection of

garbage, the adoption of a local regulation on the application and fees for a

business permit, to the creation of an inter-departmental national-level

committee for coordination of urban development. The close relationship of

urban management practice with innovation permits the study of urban

management by focusing on the adoption of organizational innovations, on

which abundant literature prevails.



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1.4 The Approach of the Study

So far, the literature in the developing countries has provided normative

statements, policy proposals, and case studies of tasks, functions, and

innovations to be adopted for urban management to succeed. Unfortunately,

studies on the innovativeness of the local government, a primary actor, in urban

management policies are rare. The newness of the concept of urban

management in the developing countries and the urgency of the problem to be

solved may have compelled researchers and scholars to look more at its

normative and prescriptive rather than its empirical aspects. While

innovativeness studies of local governments and other public institutions in

Western literature are abundant, such studies of local governments in

developing countries, particularly in the context of urban management, have

hardly begun. This constitutes a serious gap in knowledge that may have a

significant impact on policies to promote innovations in urban management and

the way they are implemented. A good understanding of the innovative behavior

of local government and factors that affect innovativeness in local government

should be an important contribution to policy formulation at higher levels for the

promotion of urban management.

As stated in the previous section, this study attempts to investigate factors

that influence local governments in Indonesia in the use of processes and

institutions in performing tasks related to urban management activities. The

study objective can be achieved by focusing on the adoption of urban



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management policy innovations by local governments in Indonesia. Using the

abundant literature on organizational innovation, and focusing on the adoption of

urban management innovations in a sample of local governments in Indonesia,

this study can uncover internal and environmental factors that influence policy

innovations in urban management and thus contribute to the understanding of

innovation adoption by organizations and to the formation of policies directed at

promoting sound urban management practice in Indonesia.

This study utilizes conceptual frameworks that have been developed in

studies on adoption of innovations by local governments. The conceptual model

used in this study relates the adoption of innovations to factors that are internal

to the iocai governments as well as factors that are inherent in the community

environment. A cross-sectional sample of 40 local governments in two provinces

on the island of Java is used to test the conceptual model using the path

analysis method.

1.5 Organization of the Study Report

This report proceeds in a straightforward manner. Following this

introductory chapter, Chapter 2 describes local government in Indonesia as a

component of the governmental system, the structure of the system of

government, roles of local government and its relationship with the community in

policy making, and the problem of decentralization. Chapter 3 deals with urban

management innovations in Indonesia, and then focuses on a number of urban



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management innovations to be investigated further in this study. Chapter 4

reviews the literature on organizational innovation and proposes a conceptual

model to be tested in this study. Chapter 5 reports the treatments performed on

the dependent variables to create three aggregate indicators for innovation

adoption, the modification of and operationalization of concepts in the theoretical

constructs, and the statistical method to be employed in analysis. In Chapter 6,

the independent variables are aggregated into a smaller number of factors.

Based on the outcomes of tests performed on the conceptual model, the findings

are reported in this chapter. Chapter 7 wraps up the study by presenting a

summary of the study and suggesting the implications of the study for policy on

the development of urban management in Indonesia, for the development of

organizational innovation theory, and for directions for further research on the

subject.



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CHAPTER 2

THE LOCAL GOVERNMENT IN INDONESIA

In this chapter I describe the governmental system in Indonesia. I focus

on the local government as a component in the system that is increasingly

responsible for the conduct of local affairs, including urban management

practice. The structural characteristics of local governments, the ir relationship

with higher level government agencies and with the local community in local

policy making are discussed. The concluding section describes the implications

of structural characteristics of the local government on opportunities for adoption

of innovations.

2.1 National Government

Indonesia is a unitary state, where the central government is the highest

authority in the country. The highest authority is embodied in the People’s

Consultative Assembly, composed of elected (as well as appointed)

representatives of the people, which has the right to elect the President and

decide the Five Year National Development Policies once every five years. The

President is subsequently mandated to execute the national development

policies, create his cabinet to implement the mandate, and report to the

eproduced with permission of the copyright owner. Further reproduction prohibited withou t permission.


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Assembly at the end of the five-year term of office. The executive branch of the

central government is overseen by the Council of People’s Representative,

composed of elected representatives. The Council is empowered to enact

national laws and control the execution of government by the executive branch.

National popular elections are held every five years to elect

representatives to the Council (who automatically become members of the

higher Assembly). After each election, the new People’s Consultative Assembly

convenes to decide the next Five Year National Development Policies and to

elect and inaugurate the President. In these quintannual popular elections the

citizens also elect representatives to the provincial and local Councils of

People's Representative, which are local counterparts to the chief executives of

the provincial and local governments.1

2.2 Territorial (Local) Government

According to Article 18 of the Constitution the division of the territory of

Indonesia into larger or smaller territories and their governance are determined

by national law (Kaho, 1988:4). As stipulated in this article, the power to create

lower order governments resides with the central government. Istanto (1968:22)

concludes that the territory of Indonesia is first divided into provinces and then

1The political aspects of the election system and their wide implications in political

culture are discussed elsewhere (see for example Ward, 1974; Liddle, 1988).



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these provinces are further divided into smaller territories.2 Thus, the provincial

and local governments are the creations of the central government: the extent of

their territories, their structures, responsibilities, resources, and powers are

determined by national laws, by-laws, and subsequent governmental

regulations.

2.2.1 Local Government Act

The Constitution also decrees that the governments of the territories may

be autonomous or administrative (non-autonomous), and that local Councils of

People’s Representatives are established for each autonomous territory. Act no.

5/1974, known as “Principles of Government in the Territories A cf further

elaborates the system for the division of powers and responsibilities between the

central and territorial governments. Within this system, territorial governments

have dual roles, i.e. (1) as the autonomous, community-based government of the

territory and (2) as the regional authority of the central government (the so-

called regional administrative functions). The dual roles are expressed in the

official name of each territory: e.g. the Province First Tier Territory of Central

2 In the Indonesian official jargon the term territory (Ind. “daerah") carries the

administrative or governmental meaning as applied to autonomous provincial and local

administrative units (i.e. territorial government), while the term region (Ind. “wilayah”) is used to

represent central functions and oversight in the territories (i.e. the regional office of such and

such central departments, or the office of the governor as the regional office of the central

government in a province).



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Java. The term “Province” carries the regional, administrative meaning, while the

term “First Tier Territory1’ carries the territorial, autonomous meaning.3

Act no. 5/1974 determines that there are two levels of territories, i.e. the

first-tier territory, equivalent to the province, and the second-tier territory,

equivalent to the kabupaten.4The kabupaten (or regency) literally means the

domain of the Bupati (or regent), the traditional title for the highest authority in

the territory, now adopted as the official title for the regional administrator for the

central government of the kabupaten. There are two types of second-tier

territory:

1) The kabupaten (or regency) usually consists of a larger geographic

area with largely agricultural and rural character, although small- or

medium-size urban areas might exist within its area (roughly

equivalent to the county in the United States).

3 The dual role is embodied in the head of the territorial government (the governor for

provinces and the bupati and mayor for the non-urban and urban territories, respectively. The

head of the territorial government simultaneously holds the position of the chief executive officer

of the autonomous government in his territory and the chief regional officer of the central

government in his jurisdiction. In his first position he directs policy making and implementation in

his bureaucracy in collaboration with the territorial Council of People's Representative,

constituting the autonomous role of the territorial government. In his second position he acts as

the representative of the central government and coordinates the implementation of central programs that are administered through regional offices of central departments.

4 The boundaries of the first-tier territories or provinces are drawn generally along

geographic and ethnic boundaries; a province always contain more than one ethnic group, as the

ethnic division in Indonesia is quite large with more than 300 ethnic groups large and small.

(Even provinces in Java where the largest ethnic groups originate contain several distinct ethnic

groups.) The boundaries of the second-tier territories are often based on the land holdings of the

traditional princes of old kingdoms.



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2) The kotamadya (or municipality) is the larger urban center, highly

urbanized and more limited in area.

The official name of the two tiers of territories and the titles of their respective

chief executives are depicted in the following table:

Table 2.1 Official Name and Official Title of Head of Territories

First Tier Territory Second-Tier Territory

Official Name Province First-Tier Territory Kabupaten (regency) Second-Tier

Territory

or Kotamadya (municipality) Second-

Tier Territory

Official Title of Head Governor, Head of First-Tier

TerritoryBupati (regent) Head of Second-Tier

Territory

or

Walikota (mayor), Head of Second-

Tier Territory

The official name and the title of the heads of the territories show very

clearly the unitary system of government in Indonesia, where the authority of the

central government is structured to reach directly down to the lowest level of

government through the design of the hierarchy. Figure 2.1 below shows a

diagram of the government structure in Indonesia.5

The diagram shows that the central government has direct authority down

to the lowest rungs of the second-tier territory (henceforth: local or local territory)

5 Not included in the diagram are the lower territorial divisions within the second-tier

territories, i.e. the sub-districts of the second-tier territories namely the kecamatan (with the

camat as the ranking public servant), which are further divided into villages (with the lurah as the

village head). These officials are considered to be the bureaucratic apparatus of the

BupatilMayor, responsible for their respective territories.



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26

CENTRAL GOVERNMENT

People’s Consultative Assembly

IPresident National Council of People's:

National Planninq ___________

Board

_____ 1Central

Departments

Central

DepartmentsDepartment of

Home Affairs

FIRST-TIER TERRI1 DRY GOVERNMENT

Regional Office

Governor !

' Head of First- j

Tier Territory i

First-Tier Territory

Council of

Representatives

Provincial Planning

Board

ProvincialDepartments

Provincial

Secretariat

ProvincialDepartments

SECOND-TIER TERRI ORY GOVERNMENT

Regional Office

Deconcentrated Structure

central line of command

territorial line of command

line of collaboration

line of coordination

Regent/Mayor |

Head of Second j

Tier Territory j

Second-Tier

Territory Council of I

| Representatives

Local Planning Board j- ■I Local Secretariat I

Local Departments! | Local Departments j

Decentralized Structure

Figure 2.1 Simplified Diagram of Government Structure(adapted from McAndrews, 1986)



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government, that is through the regional officers of the central government at the

first-tier (i.e. governor) and that of the second-tier (i.e. regent and mayor) (see

also Morfit, 1986). The central ministries also maintain regional offices through

which they implement centrally initiated and funded development programs. This

is the unitary dimension of territorial government in Indonesia. According to Act

no 5/1974 this is called the deconcentration principle of territorial government.6

2.2.2 Decentralization

The other dimension, that of territorial autonomy, is embodied in the

second principle called decentralization, in which power and authority originally

embedded in the central government are devolved to the territorial

governments—thus territorial autonomy is granted to the territorial governments.

The provincial and local governments are granted certain powers and authorities

to make and implement policies in the provision of public services. These are the

so-called “household affairs” of the territorial governments, which include

nineteen classes of affairs (Kaho, 1988).7

6 According to Act no. 5/1974, three levels of powers are delegated to local

governments, i.e. decentralization, deconcentration, and co-administration (Kaho, 1988;

MacAndrews, 1986): Decentralization is the full devolution of governmental functions to local governments of the first- and second-tier. Deconcentration is power of coordination vested in

local governments over programs administered by central government departments through their

regional offices. Co-administration is the execution of higher level government functions or

programs by lower level government.

7 Several powers are withheld by the central government, including security (police), the

judiciary, public prosecution, the military, and foreign policy. Some of the services that require

large amounts of funding are also withheld, such as public higher education, and national

highways. Some critics contend that the central government not only withhold services that



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Most of the provincial governments have been granted eighteen or all

nineteen household affairs, except for the two newest first-tier territories of Irian

Jaya and East Timor. Local governments generally have fewer household affairs

devolved to them. A sample of 26 local governments surveyed shows a median

number of household affairs devolved of 5.5 (Kaho, 1988). In general, the affairs

initially devolved at the time of the establishment of these governments include

general administration affairs, health affairs, and public works affairs. Additional

household affairs are devolved as each local government demonstrated need

and increased capacities to manage its affairs.

The devolution of affairs to local governments can be done by the central

government or by provincial government. The initial household affairs granted to

local governments were devolved by the central government as they were first

established by national law. Later devolution of affairs may be granted by

respective provincial governments (Kaho, 1982). Thus, new devolved affairs,

and consequently new local government departments are created through the

devolution process from provincial governments to local governments in their

respective jurisdictions. The process is actually rather more complicated. Central

government approval is necessary to finalize the devolution process, as the cost

require large resources but also those that have potentially large revenues, such as particular

kinds of mining, forestry concessions, etc. The nineteen household affairs are: agricultural, cattle

husbandry, inland fishery, marine fishery, small rubber planting, forestry, education and culture,

health, public works, cottage industry, social guidance and improvement, labor welfare, housing,

traffic and highway transportation, general administration, mining, state corporations, large

plantation, tourism.



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of personnel and administration of the new departments will be drawn from

central subsidies. This is one aspect of personnel management in Indonesian

local government that according to King (1988) poses a hindrance to the

decentralization process.

The heads of territorial governments at both tiers, as shown on table 2.1

above, have two simultaneous primary functions, i.e. (1) the head regional state

officer for his jurisdiction in deconcentrated functions and (2) the territorial chief

executive officer in decentralized functions. For both functions, he is responsible

to the central government, while for the decentralized functions he reports to the

local Council of People’s Representatives with respect to which he is on an

equal platform.8Thus, the power of the local Council with respect to the chief

executive officer is relatively limited. The Council’s role in local government is

restricted to that of collaborators in policy making. The Council enacts local

legislation in collaboration with the chief executive officer, conducts hearings

with local government officials on executive matters, ratifies by-laws written by

the executive branch, proposes policies and programs, but has no final power

over the executive offices. Although the Council has the right to initiate

legislation, only rarely does it do so (Kaho, 1988). This has been the concern of

many observers, who say that the low level of education and experience of local

technically, the local People’s Council of Representatives elects nominees for the head

officer’s office. The choice and appointment of the head officer is in the hands of the central

government, i.e. the Minister of Home Affairs. In rare cases do local Councils reject the

appointed head officer, although they have the right.



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Council members, in the face of increasing capacities of the executive branch,

have been an obstacle to a stronger role of the Council in local policy making

(Kaho, 1988; Soenarto, 1979; Surbakti, 1988).

2.2.3 Local Finance

The central government devolves taxing powers to territorial governments

in many kinds of taxes besides fees for services provided. The size of revenues

from these taxes and fees, however, is small and definitely not sufficient to cover

the costs of running the territorial government. The highest yielding taxes are

retained by the central government, including personal income taxes, corporate

taxes, and indirect taxes (Devas, 1989). Revenues from these taxes constitute

the larger part of central government revenues from which the national budget is

drawn. Indeed, the Constitution provides that resources that are vital to the well

being of the people will be controlled by the state. The central government

controls the largest revenues with the intent of redistributing the revenues fairly

among the regions in the form of subsidies and development grants.9

Thus territorial government finance is based on a smaller amount of

decentralized taxes and fees (own-revenues) and a larger amount of central

government subsidies. The own-revenue base of provincial government comes

9 If these taxes are devolved to the local government, the effect would be imbalance

among the territories with different levels of natural resource endowments. Therefore

concentrating control of these taxes in the central government is seen a mechanism for

equalizing distribution of national resources among the territories.



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primarily from motorized vehicle taxes, local fees, and profit from local

enterprises. Local governments have a list of 37 kind of taxes they can levy, but

only several of those have a notable yield, such as hotels and restaurant tax,

entertainment tax, street lighting tax, business registration tax. Local

governments also collect local fees for services (see Devas, 1989).

The larger portion of local revenues is drawn from two kinds of central

government transfer, i.e. the INPRES (short for President’s Instruction), and the

SDO (short for autonomous territory subsidy). The INPRES program was

initiated in 1969 as a subsidy to territorial governments for financing

development projects initiated by each local governments. Although it initially

started primarily as a program of specified grants to the territories, it gradually

evolved into un-specified block grants. The SDO or autonomous territory subsidy

is a grant specifically intended to help territorial governments cover the recurrent

cost of maintaining the bureaucracy, i.e. to pay for staff salaries. These two

sources of revenue by far exceed the amount of own-revenues generated by the

local governments. In 1983, local government revenues in the country coming

from these subsidies amount to 80 percent of the total (Devas, 1989).

Kaho (1988) has used the percentage of own-revenues in local

governments to measure the capacity of local governments for decentralization.

This approach has also been used by the central government in evaluating

capacity among local governments (Ministry of Home Affairs, 1992). Local



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staff for policy suggestions. With the support of the chief executive, the influence

of the Planning Board over the technical departments is greatly strengthened.

The territorial Secretariat shares the same proximity to the chief executive

as it takes care of the daily implementation of policy. Within this agency reside

the all important oversight or supervisory functions covering the internal

administration of government programs and projects. This office supervises the

implementation of government projects, controls the government budget, and

supervises lower level governmental apparatus (e.g. the sub-districts and

villages) responsible for order, security and stability among the citizenry.

Besides the two staff agencies, the territorial governments have technical

departments that take care of specific services. These are services that are

devolved to the territorial government by the central government within the

framework of territorial autonomy.10To be able to perform its service functions,

local governments are equipped with at least several departments. As mentioned

before, most local governments have the public works and health departments

as they were first established. Additional departments are adopted as the need

is perceived and the devolution is granted by respective provincial

10As discussed in previous sections, the local government may implement a household affair if the respective provincial government agrees to devolve it. This process is often

embodied in the creation of a new section in an old department or an altogether new department.

It is common that different local governments adopt a household affair at different times,

according to their perceived needs. However, there are some agencies that are almost

simultaneously adopted in all local governments. For example, the Planning Board was created

in all local government in Central Java in 1987.



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governments.11Generally, the number of departments in a local government is

associated with the degree of autonomy; i.e. the more decentralized affairs it

adopts, the more autonomous it is considered to be (Kaho, 1988).12

2.2.5 Central-Local Relations

If one word could summarize the relations between central government

and the territorial government in Indonesia, it would be: dependence. In many

ways the territorial governments are dependent on the central government. The

foregoing description suggests clearly that this dependency is primarily by

design. Indeed, the structural design of the governmental system in Indonesia,

as provided in Act no. 5/1974, is based on the assumption that the central

government as the highest executive power in the nation has oversight over the

entire system of government. This oversight is maintained through the structure

of authority and responsibility of leading government officials, the division of

revenue collecting powers, the national budgeting system, and the system of

personnel recruitment, among others. The strong hold of the central government

11 It should be noted here that the creation of a new department does not always entail

entirely new staff or facilities initially. Often a new local department previously existed as a

section of an old department, or as a regional office of central government or provincial department. In the former case, it is a matter of upgrading a section into a department. In the

latter cases, it is a matter of transferring responsibilities and authorities into the local government

system.

12The kinds of technical departments that can be adopted by local governments include

the following departments: public works, health, agriculture, animal husbandry, inland fishery,

marine fishery, plantation, forestry, mining, tourism, local revenues, urban planning, parks,

sanitation, building inspection, fire, traffic and road transportation.



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over the reins of territorial governments is seen as a necessity to hold the vast,

geographically divided, and culturally diversified country together. The present

New Order government has used the tenet of (political) stability as one of the

three guiding principle of the long range development plan, and to assure that

political stability, a strong hand is needed.

On the other hand, if one views the entire system of government in

Indonesia as one single unit that covers the entire hierarchy from the center to

the lowest level, then the term “dependence” is an understatement. Under this

view, the territorial government is the (central) government. However, it seems

clear that Act no. 5/1974 does not want to use this view exclusively. It may have

been realized by the writers of the law that it would be impossible to govern the

large country without some form of decentralization. It is this push and pull

between centralization interests and the need to decentralize that has influenced

the ebb and flow of relationships between central and local governments in

Indonesia. Many books and articles have been written about such relations (see

for example: Kaho, 1988; Istanto, 1968; Sunindhia and Widiyanti, 1987; King,

1988). They suggest that decentralization of powers and functions to the

territorial (especially the local) governments has been slow. Kaho (1988) even

contends that it is the provincial governments that have been reluctant to

devolve more affairs to the local governments for fear of losing scarce own-

revenues. He further asserts that the reason given for not devolving is frequently

lack of capacity in local governments to manage new affairs.



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In the past, it seems that the tendency for centralized authority was much

stronger. The tight control over the appointment of local government heads, for

example, indicates the desire to strongly manage political stability. The use of

specified grants (INPRES) to finance development programs in the territories is

another way to compel central priorities through decentralized local government

departments. In such a situation, the deconcentrated aspect of territorial

government, i.e. that territorial governments are extensions of the central

government, seems to be emphasized. The development planning process,

which encompass the entire governmental system from the village level to the

National Planning Board in a stepwise process popularly called the “bottom-up"

development planning process (see Soekardi, 1992), can still be used to

accentuate central priorities despite the appearance of a step-wise process that

starts from the very bottom of the hierarchy.

Recently, however, calls for more decentralization and strengthening

territorial (especially local) government capacities for management have been

made. The INPRES program in the past few years has shown a stronger

tendency to be less specified. More and more of INPRES money is disbursed as

block-grants. In the past decade or so, the central government, with the

assistance of international donor agencies, has experimented with and

developed the concept of urban management through a series of programs

called Integrated Urban Infrastructure Development Program (IUIDP), mentioned

earlier in Chapter 1. This program is directed at overcoming deficiencies at the



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local level in planning, implementation, operation, and management of urban

infrastructures such as roads, sanitation, drainage, water, market, and kampung

improvement. This is a significant effort in strengthening management capacities

at the local level, by which greater decentralization of powers can be effected

(see Sidabutar, 1992).13This program is coupled with efforts at improving the

revenue generating capacities of the local government, through action planning

for revenue improvement, and through training efforts to increase financial

management capacities and to sensitize responsible officials toward new

approaches to local finance, including privatization, public borrowing, joint-

projects with the private sector, intergovernmental enterprises, etc. Central

government departments, i.e. Department of Finance, Department of Home

Affairs, and Department of Public Works, are working together to promote a

more independent, innovative, and corporate approach to local government,

through the Municipal Finance Project co-funded by USAID, the World Bank,

and the Government of Indonesia.

At the present time, a pilot program is being implemented to compel one

local government in each province to be completely decentralized, i.e. to absorb

all household affairs and the accompanying departments and programs into the

13There is talk at the ministerial level of abolishing or at least reducing

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