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After more than three decades under a centralized national government, Indonesia decided to implement a new policy of regional autonomy that became effective on January 1st, 2001. This paper examines both the preparations for and the initial implementation of autonomy in the regions, as well as some of the challenges which have emerged during implementation.
In response to the economic, natural, and political crisis that enveloped Indonesia from August 1997 (beginning of depreciation) to May 1998 (Soeharto resignation), the new government announced support for a set of "safety net" (JPS) programs in the July 1998 budget.
The system of industrial relations in Indonesia is undergoing a transition from a heavily centralized and government-controlled system, to a more decentralized system where employers and employees negotiate the terms and conditions of employment at the enterprise level. However, many components are still influenced by the paternalistic central government practices of the past.
Indonesia's decentralization reform is now in its third year of implementation. The 'big bang' start marked the transfer of resources -assets, personnel and finances- to the regions to compensate for the added authorities and functions. While the speed and size of the changes to formal structure have been phenomenal, the adjustment of non-formal institutional settings is likely to take a long time.
This study is the first attempt to systematically examine the impact of bad governance practices in Indonesia on poverty reduction. Indonesia is a country that has endured bad governance for a long period, but has also sustained significant poverty reduction.
