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Indonesia: Fueling the Future

  • Briefing

  • 26 March 2012

Plans for its New Oil Wealth

Indonesia’s “big bang” decentralization of 2001 resulted in subnational governments with unprecedented control over revenues and expenditures and the responsibility to provide services to citizens. Rural regions with residents who survived on a little more than a dollar a day were assigned substantial shares of resource revenues extracted from their areas. While decentralization brought districts new wealth and responsibility, it did not automatically equip them to manage their windfall revenues. Nor did it guarantee that these governments would be open with citizens about budgets and development plans—or even have the capacity to carry through those plans for sustainable social and economic development.

From 2008 to late 2010, RWI and the Open Society Foundations Local Government and Public Service Reform Initiative (OSF-LGI) joined forces with local partners to help implement an oil revenue transparency and sustainable development planning project in Blora and Bojonegoro, two underdeveloped districts on the Indonesian island of Java. Seated atop a recently exploited oil field, the districts are raking in substantial resource revenues from this discovery but are unequipped to manage them. RWI and OSF-LGI provided funding, capacity building and technical assistance to the partners and district governments.

While the project’s approach was resource-intensive, it paid rich dividends. Blora and Bojonegoro both formalized the project’s transparency mechanism with a district regulation. Both managed to broaden the scope of transparency to not only cover revenues but also health and safety issues, environmental risk and impacts, corporate social responsibility and community development. Both governments agreed to implement the project’s sustainable development plan. Blora also allocated a budget for the project’s transparency team and convinced its government to increase the budgets of its health and education sectors, while Bojonegoro is working with the oil company to coordinate its corporate social responsibility and community development projects with the district’s planning agency.

This case study discusses how the Indonesian districts of Blora and Bojonegoro are turning substantial resource revenues into sustainable development.