After over 30 years under a highly centralized national government, Indonesia decided to implement a policy of decentralization that became effective on January 1st, 2001. This paper examines the preparations that have been undertaken within the regions, some of the initial implementation measures, and some of the key problems that emerged during the process of decentralization as managed by regional governments. The paper is based on research conducted in thirteen districts across ten provinces over the past eighteen months. This presentation has two areas of focus: first, the internal processes undertaken by local governments to manage their new powers and responsibilities; second, whether the process of creating public policies under regional autonomy for the regions reflects the spirit of transparency, good governance and democracy.

Law No. 22, 1999 on "Local Government" has devolved central government powers and responsibilities to local governments in all government administrative sectors except for security and defense, foreign policy, monetary and fiscal matters, justice, and religious affairs. This law is quite unusual since almost all powers and responsibilities are ceded to local governments without conditions and limitations. Consequently, local governments have to reform their internal structures to accommodate the huge increase in responsibility that has been passed on from the central government. A significant part of this process includes placing a large number of central government employees under the authority of the regional governments, in order to strengthen their capacity to operate effectively and efficiently. The absence of a detailed plan of the transition process and the lack of supporting regulations to clarify the procedures and processes that need to be undertaken have hampered this sweeping devolution of responsibilities. The change in government administration must also deal with a lack of initiative and support from government employees. These same government employees who are now carrying out the decentralization process are accustomed to being the implementers of highly centralized government policies.

The main objectives of decentralization include promoting the better delivery of government services and the raising of the level of local government accountability. Therefore, the focus of this discussion covers both the impact of decentralization on local governments, as well as the impact of this process on the performance of local governments in delivering services. Assuming that local governments are more familiar with the needs of their communities than the central government, we expect local governments to be able to create more suitable public policies. Such policies should be based on the spirit of transparency, good governance, and democracy. However, this is still difficult to achieve in the regions, because almost all local interest groups, including political parties, remain weak and poorly organized. They have been almost completely left out of the political decision-making process over the last three decades. The consequent of lacking a strong civil society is that true democracy for Indonesia is yet to be realized.