Group One.doc

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CHAPTER ONE

BACKGROUND OF THE STUDY AND THE FRAMEWORK FOR

ANALYSIS

Introduction

This study is about decentralisation and corruption in the Autonomous Province of

Nanggrou Aceh Darussalam (NAD) in Indonesia.1 It investigates the relationship

beteen decentralisation and the incidence of corruption in the region of Aceh. It

analyses specifically the nature of decentralisation and its implication on the incidence

of corruption in Aceh. The central government has been ac!noledging the province

of Aceh as a semi"autonomous province since 1#$#. The provincial administration

as delegated a limited authority pertaining to education% custom and religious

matters. After the reformasi% provincial governments have received a better political

deal from the central government. &y the virtue of the 'a No. 1*++1 ,la on

governing of Aceh% apart from being granted a distinguished recognition for its special

characters% namely- the implementation of Islamic Syariah (Islamic la)% the

establishment of a Syariah court% and the establishment of the Wali Nanggroe

(guardian of the state)% hich eplicitly reflects the prominence of the Islamic

traditions of Aceh% the region also as granted a greater political authority and a larger

share of its natural resources. The la had empoered the respective local DP/

(Dewan Perwakilan Rakyat/ People0s onsultative Assembly) of Aceh to formulate

Qanunor local regulations ith consultation ith local chief eecutives to assure the

smooth implementation of local development% as ell as granted Aceh% its due right%

1In this study the terms NAD and Aceh are used interchangeably% and the term 2decentralisation3 in

Indonesia is defined as 2autonomy3 and they have been used interchangeably. 4ith reference to Aceh%it has been !non as special broad autonomy.

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for the first time in $+ years to retain 5+6 of the revenue generated from its natural

resources% and other additional resource allocations from the central government.*

Aceh has been among the main beneficiaries of decentrali7ation. After the

inauguration of special autonomy status in *++1 Aceh eperienced a sharp increase of

fiscal revenues that ere derived from natural resources from a figure of /p. *8

billion (9*.5 million) in 1### (or 1.: percent of total revenue) to /p. : trillion (9:*1

million) in *++: (:+ percent). There ere also huge reconstruction funds for tsunami

recovery hich by ;une stood at *++8% ects against total fiscal pledges of


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have increased since then.E This parado implies the malfunction of the

decentrali7ation in the region. 4hat are the causes of such failureF Cas corruption

become the primary cause for this failureF

There ere to important studies hich had been conducted on the

implications of decentrali7ation on corruption% one conducted by the entral &an! of

Indonesia and another by Pad>a>aran alahedisi*$.htmlJ% (accessed 1+ ;anuary *++$)

E
http://www.kompas.com/http://www.kompas.com/


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that one should be paid for any services provided. In such a setting% one ill be

alienated by the peers for being clean and loyal to the right principles. As ?erald

aiden stated-

It is a situation here rong doing has become the norm% and thestandard accepted behaviour necessary to accomplish organi7ation goalsaccording to the notions if public responsibility and trust has become theeception% not the rule. In this situation% corruption has become soregulari7ed that organi7ation supports and bac!s rong doing andactually penali7e those ho live up to the old norm.5

In a such socio"political setting% people have become apathetic toard any

anticorruption policies. People developed a ne ay of thin!ing in terms of their

relation ith the state bureaucracy and politicians. oney politics has become the

rule of the game for those ho ant to sei7e political poer and to remain in politics.

=imilarly% money has become the grease to gear up any bureaucratic processes% be it in

business or other social matters. In response to such a malady% eperts on Indonesia

have approached the problem from many different perspectives% ranging from

economics% politics and morality. Accordingly% after long discussion and deep

evaluation of the groing demand of the regional political elites for greater provincial

political authority% the only eit for the central government is through political reform%

the implementation of decentrali7ation and fiscal balance policies. This policy hopes

to bring government closer to the people% so that a good and clean local government

free of any forms of corruption can be reali7ed. The policy also hopes to enhance the

capability of the provincial government to formulate a better and responsive local

oriented development policy.

Coever% previous studies on decentrali7ation and corruption found that there

have been different implications of decentrali7ation upon corruption% depending on the

5

?erald G. aiden and Naomi aiden% 2Administrative corruption%3 in Publi& a'ministrati(e re(iew(ay ;une) 1#55% pp. E+1"E+#

:


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Si*ni'ic#nc! o' t(! Stud)

There are at least four reasons hy this study is important- firstly% Aceh has become

the centre of attraction for not only the uslim but also the non"uslim% particularly

after the earthua!e and tsunami disaster that had !illed more than *++ thousand

people. =econdly% it is the strong hold of Islam in Indonesia and has become the pride

of the uslim all over the country. Thirdly% it is a region hich has been blessed ith

a lot of natural resources and has become the generator for the development of

Indonesia economy as a hole. @inally% it is a region hich considered as the sole and

energy that holds Indonesia as an integrated /epublic of Indonesia. Coever% after

decentralisation% a survey by the entral &an! of Indonesia indicated that corruption

has reached an alarming stage in Aceh. This is an irony that Aceh% an Islamic

province% has been considered as the most corrupt province in Indonesia. This

problem has become the ma>or inspiration for this study.

This study% therefore% can contribute to the literature on public administration

and development. The findings of this study have the potential to provide useful

information not only for the government and anti"corruption movements% but also for

businesses% to evaluate and foresee the future socioeconomic climate in terms of

decentrali7ation and corruption. This ill provide insights for these parties ith better

and more comprehensive decision"ma!ing capabilities and to better assess the ris!s

related to the socioeconomic factors associated ith decentrali7ation reforms and

corruption.

This study ill ma!e a significant contribution to the academic literature by its

on uniue ays- firstly% by corroborating certain findings of the cross"sectional

studiesH secondly% by epanding the findings of those studies to possibly identify ne

determinants affecting corruption particularly in the province of AcehH and finally%

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using a comprehensive set of data on Aceh% it identifies the precisely the relationships

pertaining to decentrali7ation reforms and corruption in the Aceh.

R!%i!+ o' t(! Lit!r#tur!

Despite the booming literature on decentralisation and corruption% there are relatively

fe case studies that focus specifically on the lin!age beteen decentralisation and

corruption. The main uestion related to the lin!age beteen these to concepts is

that to hat etent does decentralisation affect corruption and vice versa. Does

decentralisation increase corruption or decrease corruptionF =ome argue that by

bringing the bureaucracy 2closer to the people3% decentrali7ation ill improve the

uality of government and encourage competition beteen governments for mobile

resources% and facilitate the satisfaction of diverse local taste. Kthers contend that

decentrali7ation can cause problem of coordination and% orsen incentives for

officials to predate and hinder any reform of the status uo.#

&anfield argues in )orrution as a feature of go(ernmental organi*ation%

argues that Ldecentrali7ed political systems are more corruptible% because the potential

corrupter needs to influence only a segment of the government% and because in a

fragmented system there are feer centrali7ed forces and agencies to enforce

honesty.01+ =ince there is limited centralised force to enforce honesty in the

fragmented system% it creates opportunity for people to involve in corruption.

=ee% Kdd"Celge @>eldstad% 2Decentralisation and corruption- A revie of the literature3% Utstein

Anti#)orrution Resour&e )entre +U,-% (1+ ;uly *++E)H Paul =eabright% 2Accountability anddecentrali7ation in government- an incomplete contracts model3% Guropean Gconomic /evie% :+ (1)%(1##8)- 81"#.#=ee% Caroul ai. and Daniel Treisman% 2=tate corroding federalism3% .ournal of Publi& &onomi&s%

% (*++:)- 1#":EH =onin% B.% 2Provincial Protectionism3% William Da(i'son 0nstitute% 4or!ing PaperNo. $$5%


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Prud0homme% in 1he 'angers of 'e&entrali*ation% implies that there are probably more

opportunities for corruption at the local level- firstly% local officials usually have more

discretionary poers than national decision"ma!ersH and secondly% local bureaucrats

and politicians are li!ely to be more sub>ect to pressing demands from local interest

groups in matters such as taation.11 In such an environment% anor% in 1he oliti&al

e&onomy of 'emo&rati& 'e&entrali*ation% implies that decentrali7ation Lis alays

attended by an increase in the number of persons ho are involved in corrupt acts0%

although this may not imply that the overall amount of money diverted by corrupt

means ould also increase.1*

'ederman et al% inA&&ountability an' )orrution2 Politi&al 0nstitutions 3atter%

argues that decentralisation practically improves transparency. It increases

accountability of the local government% because the sub"national government is easy

to monitor% and informational problems are less severe at the local level. Cence%

decentralised political system tends to have stronger accountability mechanisms

because it improves transparency.1E In addition% &reton in )ometiti(e go(ernments2

An e&onomi& theory of oliti&s an' ubli& finan&e% also suggests that decentralisation

creates a competitive environment% hereby the sub"national government ill

11 /emy Prud0homme% 2The dangers of decentrali7ation3 in 1he Worl' 4ank resear&h obser(er% Mol.

1+% No. * (August 1##$)- *+1"**+. =ee also% Mito Tan7i% 2@iscal federalism and decentrali7ation- arevie of some efficiency and macroeconomic aspects%3 in Pro&ee'ings of the annual Worl' 4ank

&onferen&e on 'e(eloment e&onomi&s(4ashington D..- The 4orld &an!% *+++)% chapter 1:% *E1"*8E.1* ;ohn anor% 1he oliti&al e&onomy of 'emo&rati& 'e&entrali*ation (4ashington D..- The 4orld

&an! 1###)% 1+11E

Daniel 'ederman% Norman M. 'oay7a /odrigo /. =oares% 2Accountability and corruption- political

institutions matter%3 &onomi&s 5 Politi&s6Molume 15% No. 1 (arch *++$)H see also ;uan ;ose 'in7and Alfred . =tepan % 2Toard consolidated democracies%3.ournal of Demo&ra&y5% (1##8)- 1:,EEH

Nas Tavfi!. @% Albert . Price and harles T. 4eber% 2A policy"oriented theory of corruption%3Ameri&an Politi&al S&ien&e Re(iew+% (1#8)- 1+5,11#H ;ohn &ailey and Arturo Malen7uela% 2Theshape of the future%3.ournal of Demo&ra&y % (1##5)- :E,$5H =usan /ose"Ac!erman% )orrution an'7o(ernment2 )auses6 )onse8uen&es6 an' Reform (ambridge- ambridge an!ov% aralee c'iesh% Tatiana Nenova and Andrei =hleifer% 24ho ons the mediaF3

National 4ureau of &onomi& Resear&h (ay *++1) http-.nber.orgpapers*.pdfJ

(accessed *+;anuary *++:)H ;ean ;aues 'affont% and athieu eleu% 2=eparation of poers anddevelopment%3.ournal of De(eloment &onomi&s8:% (*++1)- 1*#,1:$.
http://www.nber.org/papers/w8288.pdfhttp://www.nber.org/papers/w8288.pdf


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compete in providing good services to attract the public. 4hen several government

agencies provide eactly the same service% it provides an alternative for the public to

choose from the more efficient agency. Cence% he suggests that competition beteen

levels of government ill lead to less corruption related to the provision of public

services for hich officials can demand !ic!bac!s.1:

4eingast in 1he e&onomi& role of oliti&al institutions2 market#reser(ing

fe'eralism an' e&onomi& De(eloment% also argues that a federal state structure

contributes to a more honest and efficient government by providing for competition

beteen sub">urisdictions.1$ =hleifer Mishny% in an influential theoretical paper% also

concludes that states ith a very centrali7ed institutional structure and states ith a

very decentrali7ed one may suffer less from the damaging effects of corruption than

states ith an intermediate level of institutional centrali7ation.18

onversely% decentrali7ation has become an important theme of governance in

many developing countries in recent years% as many are dissatisfied ith the result of a

centralised system of government. Decentralisation promises the people ith a good

and responsive government% it brea!s the grip of central government and induces

broader participation in democratic government.

Gmpirical studies on the lin!ages beteen corruption and decentrali7ation also

found different results. Their findings suggest that the lin!age depends on the type of

decentralisationH and different type of decentralisation may have a different direction

of lin!age ith corruption. Treisman% in1he &auses of &orrution2 a &ross national

stu'y% using Transparency International0s )orrution Per&etion 0n'e9 (PI) as the

1: Albert &reton% )ometiti(e go(ernments2 An e&onomi& theory of oliti&s an' ubli& finan&e6

(ambridge- ambridge


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main dependent variable in the regressions% finds that federal states are more corrupt

than unitary ones. Treisman finds that states% hich have more tiers of governance%

tend to have a higher perceived corruption inde% and may also do a orse >ob in

providing public services. Ce attributes this to the collective action problem for semi"

autonomous central and sub"national officials in deciding ho much to etract in

bribes from businesses that both levels have the poer to regulate- L/estraints by one

Ostate level merely increases the pic!ings of the other0. According to Treisman% the

li!ely result is a sub"optimal high demands for bribes that end up driving many private

actors out of the mar!et. In other ords% competition beteen autonomous levels of

government to etract bribes leads to Lovergra7ing0 of the commons.15

The proponent of the unitary state system% ?oldsmith% in Slaing the grasing

han'2 )orrelates of oliti&al &orrution in emerging markets% also finds positive

lin!ages beteen decentralisation and corruption. &y using a regression analysis on

corruption data hich is also based on corruption perception indices% he suggests that

federal or decentrali7ed systems are not favourable settings because they ma!e it

easier to hide corrupt practices (or intimidate histlebloers).1

Accordingly% it is important to focus on the specific type of decentralisation

and environment here it ta!es place. @isman ?atti in De&entrali*ation an'

&orrution2 (i'en&e from U%S% fe'eral transfer rograms% investigate the lin!age

beteen ependiture decentralisation and corruption. They assume that

decentrali7ation ill only be effective if accompanied by the fiscal decentralisation

that enable local governments to generate their on revenuesH and to eamine this

hypothesis empirically% they do it by studying the mismatch beteen revenue

15 Daniel Treisman% 2The causes of corruption- a cross national study.3 .ournal of Publi& &onomi&s%

(*+++)- E##":$51

Arthur A ?oldsmith% 2=lapping the grasping hand- orrelates of political corruption in emergingmar!ets%3Ameri&an .ournal of &onomi&s an' So&iology(1###)- 88"E.

1+


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generation and ependiture in


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rent"see!ingin a developmental direction by reducing transaction costsma!ing long"term investments by business profitable and productive.*+

In a similar strand% acIntyre% in0n(estment6 Proerty Rights6 an' )orrution

in 0n'onesia% summari7es that-

Indonesia as able to generate strong investment flos and economicgroth hen its legal institutions ere so ea! and corruption soidespread ere due to several reasons. @irst% various standard economicvariables combined to create an environment here high rates of returncould be epected. =econd% the political and institutional circumstancesof =uharto0s Indonesia ere such that they give the leader a poerfulincentive... to ensure that corruption is conducted in an orderly fashionthat as ithin the limits of hat the mar!et ould bear.*1acIntyre argues further that-

OCoever% the very institutional conditions that produced such a highlycentrali7ed political system and underpinned =uharto0s ability to containcorruption and arbitrary behavior ithin tolerable limitsQthus e cansee political institutions as a !ey factor in the system of governancehich produced strong investment inflos for many years% and also a !eyfactor contributing to the sudden and massive outflo of capital in 1##5and 1##.**

@urthermore% inPoliti&al &onomy of )orrution in 0n'onesia6 Beefer tries to

focus on the relationship beteen democracy and corruption. Ce argues that despite

the emergence of free and competitive elections% the problems of corruption still

persist in Indonesia. Ce suggests the folloing three important reasons for a positive

relationship beteen democracy and corruption in Indonesia-

@irst% the under"development of democratic institutions and thecorresponding prevalence of 2clientelism3 ea!en electoral discipline on

political decision ma!ers. Indonesian democracy can be said to date only

from the 1### elections% not enough time for the political process tomature and for clientelist motivations in politics to be displaced. =econd%the time hori7ons of most politicians% particularly legislators% haveshortened since the =uharto era.


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leaders confront a higher probability of losing poer. Third% decisionma!ing has not only splintered since Reformasi% but responsibilities arediffuse and opaue from the point of vie of voters. Moters are less ableto hold individual parties or legislators responsible for outcomes% leaving

parties and legislators ith feer incentives than similarly situated

legislators in more developed democracies to rein in corrupt behavior bygovernment officials.*E

Another important or! that specifically focuses on the impact of

decentralisation on corruption in Indonesia is that of Ari Buncoro. Ce employs the

=A (entral =tatistics Agency) and ==? (=pecial =urvey of ?overnance) survey

results to eamine the etent of corruption after the las of decentrali7ation ent into

effect in 1###. Ce found that the efficient grease hypothesis is really or!ing in

Indonesia% especially in ;ava. This implies that decentrali7ation in Indonesia has a

positive relation ith corruption.*:Again% Ari Buncoro and ;. Mernon Cenderson in

)orrution in 0n'onesia6 found that firms spend on average over 1+6 of costs on

bribes and over 1+6 of management time in 2smoothing business operations3 ith

local officials.*$This is supported by @iona /obertson"=nape in )orrution6 )ollusion

an' Neotism in 0n'onesia. =he found that among ordinary Indonesians% a ma>ority

(56) say that they pay bribes hen routinely interacting ith government officials

for registering the birth of a child% applying for a driver0s license or marriage

certificate% or even hen applying for a mandatory identity card.*8As Blitgaard asserts

that almost everyone ho lives and or!s in Indonesia goes along ith corruption

including foreign investors% aid donors% and international financial institution.*5

*E Phillip Beefer% The political economy of corruption in Indonesia% Kctober 5% (*++*)

http-1.orldban!.orgpublicsectoranticorrupt@lagshipourse*++EBeeferIndonesia.pdfJ(accessed *+ ;anuary *++:)*: Ari Buncoro% 2The ne las of decentrali7ation and corruption in Indonesia- eamination of

provincial and district data%3 @aculty of Gconomics


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orruption is not only done by people of ea! economic ell"being% but also by the

rich and poerful.*

The literature survey carried out here reveals that studies hich specifically

analyse the lin!age beteen decentralisation and corruption are very fe% despite of

fact that decentralisation has become a popular theme in many developed and

developing countries. The eisting theories on lin!age beteen decentrali7ation and

corruption are suggesting different results. =ome argue decentrali7ation ill improve

the uality of government and encourage competition beteen local governments for

mobile resources% and facilitate the satisfaction of diverse local taste% therefore reduce

corruption. Kthers contend that decentrali7ation can cause coordination problem%

orsen incentive for officials to predate and hinder any change for the status uo and

thus perpetuates corruption. Gmpirical researches also offer contradictory

conclusions. They found that different countries have different eperience ith

decentrali7ation% depending on the definition of decentrali7ation that they adopt.

&eing aare of the different types of decentrali7ation and their lin!ages to corruption%

this study is the first comprehensive one on the lin!age beteen decentralisation and

corruption in Aceh in particular. In so doing% it ta!es into account all possible factors

related to the issue% as Alatas suggests that the study of corruption must ta!e into

account the historical% cultural and political settings of the phenomenon.*#4ithin this

perspective% this study ill try to fill the gap and enrich the academic literature in

public administration or management and this study can provide a better and

comprehensive approach to minimi7e corruption in Aceh.

* &aharuddin 'opa% 2Asal muasal !orupsi%34isnis 0n'onesia +1abloi'-6 *1 November *++#*#

=yed Cussein Alatas% )orrution2 0ts nature6 &auses an' :un&tion ( Buala 'umpur- =. Abdul a>eed%1##+)% 1+

1:


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T(!or!tic# 'r#"!+or,

This study eamines the lin!age beteen decentralisation and corruption in

Aceh. In so doing% it is crucial to eplain the three essential elements of the frameor!

of analysis used in this study- (1) decentralisation% (*) corruption and (E) the nature of

relationship beteen decentralisation and corruption. The frameor! of analysis as

such ill enable this study to develop an operational method of eplaining the lin!age

beteen decentralisation and corruption in Aceh.

D!'inition o' D!c!ntr#i-#tion

Decentralisation is a term used to cover a broad range of transfers of decision ma!ing

from central government to regional% municipal or local governments.

Decentralisation generally refers to transfer of various properties or functions%

management and administration from the national or central government to the sub"

national government. The sub"national government includes entities such as

administrative field officers% local government% parastatals% non"governmental

organisation (N?K) and any structure representing the community or public. E+

The


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administrative units% semi"autonomous and parastatal organisations% local governments

or non"governmental organisations.3E*

Coever% ahood discards such a broad definition of decentralisation. Ce

vies decentralisation as a structure of government created at the local level

2separated by la from the national centre% in hich local representatives are given

formal poer to decide on a range of public matters.3 ahood further argues that

2the area of authority of these structures is limited but ithin that area their right to

ma!e decisions is entrenched by the la and can be altered by ne legislation. They

have resources hich% sub>ect to the stated limits% are spent and invested at their on

discretion.3EE

The concept of decentralisation is used by different scholars to refer to a

variety of governmental structures depending on the contet it is used. Thus% it is

important to provide a clear and unambiguous definition of the term for the purpose of

this study. In this study the term decentralisation is defined as the transfer or handing

over of authority and responsibilities for public functions by the national government

to a sub"national government to plan and implement decision concerning issues hich

are essentially local in nature. The etent of authority that national government

transfers to sub"national government depends on the form of decentralisation the

government ants to pursue.

According to Noore Alam =iddiuee decentrali7ation can ta!e a number of

different forms depending upon the degree of authority is transferred from the central

government to local government% or agencies at a regional or local level. In this regard

he says-

E*?. =. heema and D.A. /ondinelli% (ed) De&entralisation an' 'e(eloment2 oli&ies imlementationin 'e(eloing &ountries(&averly Cills- =age Publication% 1#E) 1EE

Phillip ahood% (ed) $o&al go(ernment in the thir' worl'2 1he e9erien&e of troi&al Afri&a(hichester- ;ohn 4iley =ons) *

18


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The degree of responsibility for and discretion over decision ma!ingthat is transferred by the central government can vary a great deal. Itranges from simply shifting or!"load to field agents of a centralministry to the ultimate transfer of administrative and political authorityto legally constituted local government bodies.E:

Kn the basis of the ranges of authority and nature of the agencies to hom the

central government transfers some of its functions and authority or shares ith at

different level% four broad types of decentrali7ation have been identified. These four

types of decentralisation are also contained in the >oint


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devolved are usually recogni7ed as independent legal entities (such as municipal

corporations) and are ideally elected (although not necessarily).E8 Accordingly%

/ondinelli identifies five fundamental characteristics of the ideal form of devolution-

1. 'ocal government units are autonomous% independent and clearly perceived asseparated levels over hich central government eercise little or no directcontrolH

*. These units have clear and legally recognised geographical boundaries overhich they eercise authority and ithin hich they perform functionsH

E. The have corporate status and the poer to raise sufficient resources to carryout specific functionsH

:. It implies the need 2to develop local governments as institutions3 perceived bylocal people as belonging to them% or!ing to satisfy their needs and remainsub>ect to their control and influenceH

$. It establishes a reciprocal% mutually beneficial and coordinative relationshipbeteen the central and local governments.E5

A'ministrati(e 'e&entrali*ation aims at transferring decision"ma!ing authority%

resources and responsibilities for the delivery of a select number of public services

from the central government to other loer levels of government% agencies% and field

offices of central government line agencies. The folloing are the ma>or types of

administrative decentrali7ation-

De&on&entration transfers authority and responsibility from one level of the

central government to another hile maintaining the same hierarchical level of

accountability from the local units to the central government ministry or agency hich

has been decentrali7ed. Deconcentration can be seen as the first step of nely

decentrali7ing governments to improve service delivery. It involves the shifting of

or!load from central government ministry to its on field staff located in offices

outside the national capital. =ince it is basically administrative in nature%

deconcentration implies no transfer of final authority from the central ministry hose

E8=ee .=. ;ohn and ;os hathu!ulam% 2easuring decentralisation- The case of Berala (India)3Publi& A'ministration an' De(eloment6 *E. (*++E)- E:#E5D. A. /ondinelli% 2?overnment decentralisation in comparative perspective- Theory and practice in

developing countries30nternational Re(iew of A'ministrati(e S&ien&e6 vol. :5 (1#1)- 1EE"1:$% cited in=iddiuee% *#"E+

1


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overall responsibility continues. In addition% it is the eecutive order that creates the

administrative apparatus of the deconcentrated unitsH hence the authority transferred to

these units can be ithdran through another eecutive order. eaning that% the

central government maintains her control by draing guidelines and directives for the

field agents in discharging their responsibility.E

Delegation redistributes authority and responsibility to local units of

government or agencies that are not alays necessarily branches or local offices of the

delegating authority. 4hile some transfer of accountability to the subnational units to

hich poer is being delegated ta!es place% the bul! of accountability is still vertical

to the delegating central unit. In delegation% it is often that the central government

ministry delegates some functions and responsibilities to parastatal organisation or

public corporations% regional planning and area development authorities% hereby

these organisations possess a semi"independent status to perform their functions and

responsibilities.E#

:is&al 'e&entrali*ation is a core component of decentralisation. It comprises

the handover of responsibilities that includes sectoral functions% as ell as the transfer

of on"sources of revenues to sub"national governments. The concept implies that

sub"national government must have an adeuate level of revenues ,either raised

locally or transferred from the central government, as ell as the authority to ma!e

decisions about ependitures. @iscal decentrali7ation can ta!e many forms% including-

1. =elf"financing or cost recovery through user chargesH*. o"financing or co"production arrangements through hich the users

participate in providing services and infrastructure through monetary or laborcontributionsH

EIbid *5% see also Bai Baiser% 2Decentrali7ation reforms3http-.orldban!.orgpublicsectordecentrali7ationP=IAforDecentrali7ation.pdfJ (accessed *+;anuary *++8)H =ee Tulia ? @alleti% 2A seuential theory of decentrali7ation- 'atin American cases in

comparative perspective3Ameri&an Politi&al S&ien&e Re(iew6 Mol. ##% No. E (August *++$)- E*E#Ibid.%

1#


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E. Gpansion of local revenues through property or sales taes% or indirectchargesH

:. Intergovernmental transfers that shift general revenues from taes collected bythe central government to local governments for general or specific usesH and

$. Authori7ation of municipal borroing and the mobili7ation of either national

or local government resources through loan guarantees.:+

Arrangements for resource allocation are usually negotiated beteen local and

central authorities and they are dependent on several factors including concerns for

interregional euity% availability of central and local resources and local fiscal

management capacity. =ome level of resource reallocation is usually made to allo

local government to function properly. This clearly implies that ithout proper

defined fiscal decentralisation% political and institutional decentralisation ill have

little effectH and therefore% poorly articulated roles and resources deficiencies can

cripple local government and undermine incentives for local officials and elected

representative to perform effectively.:1 Thus% fiscal decentralisation involves the

empoerment of the local government to raise and retain financial resources in

fulfilling their responsibilities.:*

Pri(atisation or market 'e&entrali*ation2 This form is done in favour of non"

public entities here planning and administrative responsibility or other public

functions are transferred from government to voluntary% private or nongovernmental

institutions ith clear benefits to and involvement of the public. This often involves

contracting out partial service provisions or administration functions% deregulation or

full privati7ation. 'itvac! and =eddon state that privatisation includes-

1. Alloing private enterprises to perform functions that had previously beenmonopoli7ed by governmentH

*. ontracting out the provision or management of public services or facilities tocommercial enterprises indeed% there is a ide range of possible ays in hich

:+ ;ennie 'itvac! and ;essica =eddon% De&entralisation briefing notes6 (ed) (4orld &an! Institute)%http-siteresources.orldban!.org4&I/esourcesbiE51:*.pdhJ (accessed *+ ;anuary *++:):1 Paul =mo!e% 2Decentralisation in Africa- ?oals% dimensions% myth and challenges3 Publi&

A'ministration an' De(eloment% *E (*++E)- 5"18:*Baiser.% E1

*+
http://siteresources.worldbank.org/WBI/Resources/wbi37142.pdhhttp://siteresources.worldbank.org/WBI/Resources/wbi37142.pdh


21/35

function can be organi7ed and many eamples of ithin public sector andpublic"private institutional forms% particularly in infrastructureH

E. @inancing public sector programs through the capital mar!et (ith adeuateregulation or measures to prevent situations here the central government

bears the ris! for this borroing) and alloing private organi7ations to

participateH and:. Transferring responsibility for providing services from the public to the private

sector through the divestiture of state"oned enterprises.:E

Coever% =iddiuee argues that the perception of privatisation as a form of

decentralisation is misleading. any vie 2privatisation3 not as decentralisation% but

as modification of poer and authority ithin the state. /ather it signifies a

redefinition and a narroing of the roles and functions of the state by alloing more

functions to be performed by private agencies.::

In summation of the above discussion it is important to note that although these

four forms of decentralisation differ in their characteristics and implications% they are

not mutually eclusive. In practice most governments adopt some combination of

these four types of decentralisation. =iddiuee further maintains that despite analytical

convenience in distinguishing each type of decentralisation from the other% in specific

circumstances it may be difficult to distinguish eactly hat 2mi3 of decentralisation

a country pursues.:$uoting onyers% =iddiuee states five basic criteria that should

be utilised hen specific decentralisation policies are eamined-

1. The functional activities over hich authority is transferredH*. The type of authority or poer hich are transferred ith respect of each

functional activitiesHE. The level(s) or area (s) to hich authority is transferredH:. The individual% organisation or agencies to hich authority is transferred at

each levelH and$. The legal or administrative means by hich authority is transferred.:8

:E'itvac! and =eddon.::=iddiuee% E1H see also /. roo! and ; anor%Demo&ra&y an' 'e&entralisation in South Asia an'West Afri&a2 A&&ountability an' erforman&e(ambridge- ambridge


22/35

Caving dealt ith the conceptual issues of decentralisation% the net section

focuses on clarifying the conceptual issues of corruption- its definition and typology.

D!'inition o' Corru.tion

orruption is difficult to define in a single sentence. It is a comple and multifaceted

phenomenon. 4hat is possible is a reasoned description of corruption and isolate it

from hat it is not. orruption has been referred to as 2moral decay3 or to a ide

range of illicit or illegal activities associated ith the 2misuse of public poer or

position for personal benefit.3 It includes the act of bribery% hich implies the

betrayal of public trust and violation of established rules for personal benefit. In

general% the term corruption has a moral implication.47 In addition% eperts on

corruption agree that corruption can be defined simply as 2the misuse of public poer

for private profit or political gain.3: Coever% there is a problem ith this definition.

for instance% ho are e going to differentiate corruption from mere patronage politics

and favouritism for electoral reasonsF an the act to serve the interest of political

supporter by politicians be considered as corruptionF

To solve this problem% corruption must be described according to here it

occurs- at the political or bureaucratic levels of the public sector% or ithin the private

sector. It% therefore% should be defined according to its intensity- hether it is isolated

or systematic. Kther specifications include- grand versus petty% local versus national%

personal versus institutional% and traditional versus modern.:# &ased on

:5Arnold ;. Ceidenheimer% . ;ohnston and M. 'e Mine (eds.)%Politi&al &orrution2 A han'book(Ne&runsic!- Transaction% 1##)% in hich these three types of definitions are used as starting points foranaly7ing political corruption.:/obert =. 'ei!en% 2ontrolling the global corruption epidemic%3 :oreign Poli&y% number 1+$ (4inter

1##8)- $$"5E.:#

Paul Ceyood 2Political corruption- Problems and perspectives%3Politi&al Stu'ies% vol. :$% numberE% (special issue 1##5)

**


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Ceidenheimer0s or!s% ar! Philip identified three broad definitions most commonly

used in the literature- public office"centered% mar!et centered% and public interest"

centered definitions.$+ Publi& offi&e#&entere' 'efinition of &orrution refers to a

behaviour that digresses from the formal public duties of an official for reasons of

private benefit. In this regard ;.=. Nye says-

orruption is a behaviour% hich deviates from the formal duties of apublic role because of private regarding (personal% close family% privatecliue) pecuniary or status gainsH or violates rules against the eercise ofcertain types of private regarding influence. This includes such behavioras bribery (use of reard to pervert the >udgment of a person in a positionof trust)H nepotism (bestoal of patronage by reason of ascriptive

relationship rather than merit)H and misappropriation (illegalappropriation of public resources for private"regarding uses).$1

3arket#&entere' 'efinitions of &orrution is based on social or public choice

theory% utili7ing an economic methodology ithin a political analysis. ;acob van

Blavern in this regards says-

A corrupt civil servant regards his public office as a business% the incomeof hich he ill see! to maimi7e. The office then becomes a2maimi7ing unit3. The si7e of his income depends Q upon the mar!etsituation and his talents for finding the point if maimal gain on the

publics0 demand curve.$*

Publi& interest#&entere' 'efinition of &orrution6 on the other hand% focuses on

behaviors% that eert negative impact on the elfare of the public. In the ords of

arl @riedrich-

The pattern of corruption can be said to eist henever a poer"holderho is charged ith doing certain things% i.e.% ho is a responsiblefunctionary or office holder% is by monetary or other reards not legally

provided for% induced to ta!e actions hich favour hoever provides thereards and thereby does damage to the public and its interest.$E

$+ ar! Philip% 2Defining political corruption%3 Politi&al Stu'ies% Mol. :$% number E% (special issue

1##5).$1;.=. Nye% 2Political corruption- A cost"benefit analysis%3 in Ameri&an Politi&al S&ien&e Re(iew6 'UI

(*)- :15":*5% in 9laining &orrution6 reprinted% ed. /obert 4illiams (


24/35

The definitions above have one common element- they attempt to classify

behaviour and identify pattern of corruption. =till% lin!ed to official behaviour%

representing the principal"agent"client (PA) approach% /ose"Ac!erman narroly

defines corruption as any form of payments to agents by the third"party to influence

the agent0s decision that are not passed on to superiors.$:

/ecent academic studies and international organi7ations have opted in favour

of more minimalist definitions% sufficiently broad to encompass most cases of

corruption. Transparency International% the Asian Development &an! and the 4orld

&an! use similar definition. The 4orld &an! ta!es its minimal or!ing definition the

abuse of public office for private gain and fleshes it out by identifying specific abuses-

Public office is abused for private gain hen an official accepts% solicits%or etorts a bribe. It is also abused hen private agents actively offer

bribes to circumvent public policies and processes for competitiveadvantage and profit. Public office can also be abused for personal

benefit even if no bribery occurs% through patronage and nepotism% thetheft of state assets% or the diversion of state revenues.$$

&y subscribing to minimalist definition of corruption% =yed Cussein Alatas

proposes a typology of corruption consisting of seven categories- transactive%

etortive% investive% defensive% nepotistic% autogenic and supportive.$8

1ransa&ti(e &orrution refers to any mutual arrangement beteen donor and

recipient to the advantage of and actively pursued by both parties. =uch arrangement

normally involves either business and government or public and government.

9torti(e &orrutionrefers to the situation here donor is compelled to bribe in order

to avoid harm being inflicted upon his person% his interest% or upon those person or

$:=usan /ose"Ac!erman% )orrution2 A stu'y of oliti&al e&onomy( Ne Ror!- Academic Press% 1#5)8"5$$4orld &an!%!eling &ountries &ombat &orrution2 1he role of the Worl' 4ank. (4ashington% D..

1##5)$8Alatas% E:

*:


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things dear to him.Defensi(e &orrutionis considered as the behaviour of the victim

of etortive corruption. orruption occurs in self"defence.0n(esti(e &orrutionrefers

to a situation here donor offer goods or services ithout any direct lin! to a

particular favour% rather it is done in anticipation of future occasion hen the favour

ill be reuired.Neotisti& &orrutionis also referred as neotism% hich connotes as

an un>ustified appointment of friends or relatives to public office% or the rendering to

them of favorable treatment% in pecuniary or other forms% and that act should violate

the norms and rules of the underta!ing. Autogeni& &orrution refers to an act of

stealing through deception in a situation hich betrays a trust. In this form of

corruption% normally it involves only the individual. @inally% suorti(e &orrution

hich does not involve money directly or any other immediate return% but it is an act

to protect and strengthen the eisting corruption.$5

organ also develops a typology of corruption based on its severity. =he

claims that the eistence of each form of corruption in a political system or

bureaucracy is not mutually eclusive% rather its coeistence freuently occurs% and it

is common for the practice of to or more types of corruption to occur

simultaneously. =ome types act as medium of action for the other types.$ organ

suggests five fatal forms of corruption-

4riberyrefers to an act of giving any article of value to government official in

echange for any act or omission in the performance of that official0s public function.

uoting /ose"Ac!erman% she maintains that there are to reasons hy people or

firms offer official bribes- to obtain access to government benefits and to avoid cost.

$5Ibid.% E$Amanda '. ogan% )orrution2 )auses6 &onse8uen&es an' oli&y imli&ations% Asia @oundation

4or!ing Paper =eries% no # (Kctober 1##) http-.asiafoundation.orgpdfp11.pdfJ (accessed*+ ;anuary *++:)

*$
http://www.asiafoundation.org/pdf/wp11.pdfhttp://www.asiafoundation.org/pdf/wp11.pdf


26/35

Pillaging of state assetor theft of state assetrefers to an act of stealing of state

assets% hich includes spontaneous privatisation of state assets by enterprise managers

and other officials in some transition economiesH the petty theft items such as office

euipment and stationary% vehicle% and fuelH theft of governmental financial resources

such as ta revenues or feesH stolen cash from treasuriesH etended advances to

themselves that are never paid% or payment from fictitious 2ghost3 or!ers. Normally%

the perpetrators are usually middle"and"loer level officials. In some cases% this form

of corruption occurs as compensating for inadeuate salaries.

Distortion of go(ernment e9en'iture% this type of corruption occurs hen

decision"ma!ing on public ependiture becomes unrelated and irrelevant to national

vision for strategic development. ?overnment spending decisions are made in order to

maimise the benefit of individual decision"ma!er% instead of the public elfare. It

implies that government spending becomes a function private rather than public

interest.

Patronage% or &lientalismrefers to as instrument through hich political poer

is acuired and maintained by granting economic advantages to supporters in

echange for political support. These economic advantages include employment in

bureaucracy or state industries% access to public goods and services% property rights%

and the right to participate in the mar!et system. Patronage"based government has

tendency to regulate economic activity ith a vie to epanding patronage netor!. It

motivates politicians and their clients to deliberately fashion imperfect information in

order to benefit from them. lientalism resembles corruption hen the right to

participate in the mar!et system is allocated according to the discretion of political

sponsors. Accordingly% the to are contradicting ith universalistic% rule"bound

methods for conducting public business. @or instance% schools and clinics are built for

*8


27/35

supporters rather than those truly in need. Appointments are distributed to support

relatives or to repay debt. Kstentatious ealth is acuired by those ho subvert or

circumvent the government. In fact% government ill not be responsive to general

interest hen favoritism and personal preference replace precedent and rules.

)ronyism can be distinguished from patronage by its higher degree of

personalisation% centralisation% or domination of rent distribution activity by individual

ruler or ruling family.


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To interrelated uestions are central to the analysis of lin!age beteen

decentralisation and corruption- (1) is there any relationship beteen decentralisation

and corruptionF And (*) hat is the nature of the relationship beteen decentralisation

and corruptionF The anser to these uestions is hypothetically predicted on the

assumption that the relationship beteen decentralisation and corruption is both

positive and negative. =ome provide an optimistic assessment of the effects of

decentralisation on corruption% hile there are also vies that claim that the effects are

insignificant% ambiguous and contet"dependent% ith some at the opposite etreme

ho assert that decentralisation eacerbates the problem of corruption. The discussion

belo provides a better insight into the nature of the relationship beteen

decentralisation and corruption.

The proponents of decentralisation maintain that decentralisation provides a

multidimensional empoerment of local government. @irstly% it provides local

government ith authority over legislation and implementation of local regulation.

=econdly% decentralisation enables local government to raise it on revenues by

setting and collecting taes% borroing from higher level (central) government or the

mar!et% and allocating ependiture on local service. @inally% decentralisation is

commonly associated ith democracy at local government. It improves the

participation of the people in local government. It also increases political competition

and transparencies at the local government. Caving smaller constituencies at the local

level% decentralisation ma!es monitoring easier and reduces the problem of distortion

of information. In the nutshell% being commonly associated ith local democracy%

decentralisation helps in improving local government accountability. And therefore% it

improves the capability of the local government to formulate policy that can meet the

needs and facilitate the satisfaction of the local population.

*


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It is asserted that devolution ma!es accountability more meaningful because of

the relationship and incentive it creates beteen representatives% bureaucrats and

citi7ens. Decentralisation improves the collective action of the people in evaluating

and monitoring the performance of locally elected representatives and public officials.

Kn the basis of their performance they are elected% re"elected or removed from office.


30/35

local populations. The central government% having very little information on local

needs% delivery costs and the amount actually delivered% cannot control the

performance of the local government that has better information on the local interests.

It is easy for local officials and local elites to cooperate in the pursuance of their

private interests% at the epense of the non"elite interest or general publics.

@rom the discussion above% there are to patterns of relationship beteen

decentralisation and corruption- either decentralisation increases opportunity for

corruption or reduces the chance of misuse and abuse of public office for personal

gains. In the light of the discussion above% it is important to !no hether ;a!arta0s

policy of decentralisation and empoerment of local elites in Aceh increases the

chances or reduces the possibility of misuse and abuse of poer for personal and

private gains. Thus% this study eamines the folloing hypothesis-

1. Decentralisation is a useful institutional reform for reducing corruption in Aceh

*. Decentralisation has become a recipe for corruption in Aceh

Thus% the eplanatory poer of the frameor! applied in this study is futher

improved by identifying the factors that are conducive for either increasing or

decreasing the chances for corruption in the region. These factors are- the relative si7e

of political authority% fiscal transfers from the central government and finally the

political leadership in the Aceh government. These factors ould be useful in

eplaining the incidence of corruption in the post"centralised system of governance in

Indonesia% ith special reference to Aceh as a cases study.

An#)tic# Mod!

Accordingly% this study adopts Blitgaard0s formula on corruption.

E+


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C /corru.tion0 1 M /"ono.o)0 2 D /di&cr!tion0 3 A /#ccount#biit)0

@rom this euation it can be assumed that the opportunity for corruption is a function

of the si7e of the rents under a public official0s control () and the discretion that the

official has in allocating those rents (D)% and minus the accountability that the official

faces for his or her decisions (A).81 In a simpler form% opportunity for corruption

depends on the folloing factors-

1. onopoly poer of officialsH

*. The degree of discretion that officials are permitted to eerciseH

E. The degree to hich there are systems of accountability and transparency in an

institution.

Mono.o) Po+!r

An agent% either government official or politician is designated to perform specific

tas!s. &eing legally assigned to specific tas!s% the agent rises to become a monopoly

poers% and that create opportunities for corruption. In this case% corruption might

occur under to conditions% first% hen there are no agencies other than the

government hich can provide that service% such as licensing. =econd% the agent may

create the shortage% so that he may have opportunity to demand bribery.

Di&cr!tion#r) Po+!r

Despite having monopoly authority on specific tas!s% the rules and regulations

regarding the distribution of (or purchase) of government goods have created greater

opportunities for the agent to etract bribery. It can be assumed that the greater the

amount of discretion is given to agent% the more opportunities there ill be for them to

etract bribery. Agents can use their discretion to give 2favourable3 interpretation of

government rules and regulations to businesses in echange for illegal payments.

81Blitgaard% 5$

E1


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Monitorin* #nd Account#biit)

4ithin the government administrative circle% principals very often come and go and

their term in the office is ell"defined% hile the agents are not% some of them have

been there ithin the circle for more that a decade% they are the eperts of their tas!

and the rules and regulations that defined their position. &eing ne to the post% the

most crucial problem that challenges the principal is the asymmetries of information

about the running of public administration% and hich ma!es it difficult for him to

control effectively the actions of agents and hold them accountable for their actions

hen they fail to carry out an assigned tas!.8*

In vie of that% this model suggests that opportunities for corruption are due to

three important technical aspects of government administration- the failure to rotate

agents beteen the posts% failure to use outside auditors and the lac! of consultation of

client of a particular bureaucratic agency. Accordingly% in analysing the lin!age

beteen decentralisation and corruption in Aceh% this study evaluate the implication of

decentralisation on the three factors in the local government in Aceh% and therefore

ansers the folloing research uestions-

1. To hat etent does decentralisation affect the monopoly and discretion poer

of the local government apparatus in AcehF

*. Does decentralisation increase the accountability and transparency in the local

governments in AcehF

8*=usan /ose"Ac!erman% orruption-A Stu'y of Politi&al &onomy (Ne Ror!- Academic Press% 1#5)%the principal here can be referred either the chief eecutive such as governor% regent and mayor ho

represent the people% or people themselves% ho are supposed to monitor and hold governmentapparatus accountable for their action.

E*


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M!t(od o' D#t# Co!ction

The study uses multiple triangulation method of data collection% it uses primary

sources such as official documentsH consultation and interviesH and a survey on the

people0s perception of the lin!age beteen decentralisation and corruption in AcehH

and secondary source of published academic or!s. Kfficial documents include

?overnment rules and regulations on decentralisation and the 1#:$ constitution. These

sources discuss the political structure and poer distributions beteen the central

government and regional government% ith special reference to the autonomous

region of Aceh. /egarding the incidence of corruption% the study ill brose the

official reports published by the governmental organi7ations such as the &PB (&adan

Pemeri!sa Beuangan @inancial Auditory &oard)% the BPB% and also non"

governmental organi7ations such as the I4% International Transparency Indonesia%

International Transparency% =o/AB ((Soli'aritas 7erakan Anti Korusi Anti"

corruption ovement =olidarity) and ?e/AB (7erakan Antikorusi Rakyat People0s

Anti"corruption ovement) in Aceh% etc. The reports ill be analysed on to bases-

firstly% the incidence of corruption before and after decentrali7ation% and secondly% the

nature of decentrali7ation and its lin!age ith the incidence of corruption in Aceh.

onsultation and intervies includes in"depth intervies ith distinguished

scholars and local political elitesH and focus group discussion ith members of local

anti"corruption movements% professional group and selected general population. The

intervie ill focus on the lin!age beteen decentrali7ation and corruption in Aceh.

It also conducts a survey on people0s perception toard lin!age beteen

decentralisation and corruption. The survey instrument is a structured uestionnaire

containing a range of uestions (see Appendi 1) regarding perceptions of corruption

and actual eperiences ith corruption hich are combined ith the different

EE


34/35

respondent groups. The uestionnaires are administered to three types of respondents

, households% business enterprises and public officials in the unicipality of 'angsa.

The total sample si7e is E++ respondents that are randomly selected- $+ respondents

from public officials% $+ respondents from private business enterprises and *++

respondents from households. The reason for choosing 'angsa city as the site for the

survey is due to the socio"political condition of the city hich is considered as lesser

affected by protracted political conflict and natural disaster% such as the tsunami that

occurred in December *8% *++:.

@inally% Published academic or!s include any published or!s on socio"

political and cultural development in the region. 'ocal nespapers% such as =erambi

Indonesia and odus Aceh are also resourceful data source for the contemporary

socio"political development of the region% and also% any periodical >ournal that cover

politics and development in Aceh% and Indonesia in general

C(#.t!r Outin!

This study is composed of si chapters. The chapters are organi7ed in a

chronological and thematic order. hapter one is introductory. It contains the

statement of the problem% its significance% previous studies on decentralisation and

corruption in Indonesia and the theoretical frameor!. hapter to presents a

historical overvie of the political history of Aceh starting from its integration ith

Indonesia% to the inauguration of autonomous status of the region as Nanggrou A&eh

Darussalam% hapter three evaluates the 'as on local governments and its

implication on Aceh. hapter four eplores the nature of corruption and factors that

led to the prevalence of corruption in Aceh before decentralisation. hapter five

eamines the nature of corruption in Aceh after decentralisation too! affect in the

E:


35/35

region. hapter =i eplores people0s perception toard the lin!age beteen

decentralisation and corruption in Aceh. The final chapter provides a summary of the

ma>or findings of the study and eplores their implications on socio"political

development in Aceh as ell as provides some recommendations and suggestions for

resolution or alleviation of the problem of corruption.

Group One.doc

Documents