It has the power to reduce poverty and foster development. But has Indonesia’s much celebrated village law lived up to expectations? 

In January 2014, Indonesia’s new law on villages (Law no 6/2014) generated quite some excitement.

Village heads were cheering in the People’s Representative Council (DPR). The media was positive. National politicians and presidential hopefuls were scuffling to capture the imagination of rural voters ahead of the April general election by promising ever larger allocations of grants to villages, under the slogan  “Satu Desa, Satu M” (One Village, One Billion [rupiah]).

The Village Law represents one of the most significant pieces of legislation in Indonesia’s ongoing efforts to shift power from Jakarta to its regions – putting authority in the hands of more than 74,000 villages as part of a decentralisation process that commenced in 2001.

The law was long in the making – an initial draft was circulated ahead of the 2004 revision of the law on regional governance. The law’s development thus followed the typical Indonesian pattern of policy-making described by Marcus Mietzner; in the absence of strong executive leadership, various actors try out ideas in public and eventually reach a compromise. In the case of the Village Law, this meant combining the functions of a self-governing community with local self-government.

Debates around subnational governance in Indonesia have focused mainly on districts, provinces, and their relationships with central agencies. To better understand how democratisation and decentralisation impact village governance, community life, and rural development, we have just completed a major study on the issue.

Using longitudinal data from 40 Indonesian villages included in the World Bank-funded Local Level Institution study (LLI) we investigated the effects that prior policy has had on village life and identified implications of the 2014 law on village governance.

We found that there is potential for the law to increase government responsiveness and rural development — if it is combined with strong financial management systems, new national institutional arrangements, and empowered citizens who can apply pressure on village governments to work in the interests of communities.

During the past two decades, state and community actors have enhanced local problem-solving through mutually reinforcing efforts. In the first LLI study (1996), the state dominated community life, but was simultaneously disconnected from it, so that villagers often had to circumvent village government in their efforts to build needed infrastructure, address emergencies (for example drought, fires, and floods), and solve production problems (such as access to credit, markets, and land).

Throughout the turbulent times of the second LLI study (2001), when the Indonesia state was grappling with the post-Suharto era and major political change, we saw reactions against (earlier) heavy-handed state involvement —including high levels of protests against corruption and the election of some reformist village heads.

By the third LLI study (2012), villagers were facing an environment with more readily accessible state resources, some beneficial shifts in the broader political economy, and empowered village-head positions, to which a more inclusive range of candidates had been elected.

The village law represents an opportunity to consolidate these fragile gains in state–society cooperation. At the same time, it must also address weaknesses in the decentralisation model by improving governance arrangements and shifting resources to a level of government less captive to special interests.

So what has been the result of the law’s introduction?

Funding was the most controversial part of the law’s development. The law radically increases funding for villages, in some cases more than 10-fold, and President Joko Widodo has promised future increases in national budget funds transferred directly to village accounts.

Under the village law 30 per cent of the village grants provided by higher authorities should be used for village government operations, and 70 per cent for development. However, the law and implementing regulations do not adequately regulate village financial management. The law’s provisions must be combined with stronger accountability and governance arrangements, such as increasing the capacity of districts to oversee and coordinate village activities, audit village budgets, and design a simple and effective budget and information management system.

We do not know yet how village grants have been used, and whether they have contributed to more corruption, prompted economic growth, or reduced poverty. The president is impatient and has instructed his Executive Office to monitor the implementation of the law closely and ensure that funds are used for national priorities, which include developing rural areas.

At a minimum, we have not seen an avalanche of petty corruption cases in villages – there seem to be just enough of accountability arrangements to ensure that funds are embezzled or used to finance local patronage. But anecdotal evidence doesn’t tell a story of a great rural recovery – we are somewhere in-between.

The law specifies several accountability mechanisms, including an empowered Village Council, inclusive Village Assemblies, transparent information systems, clear upwards reporting lines, skilled facilitators in every village. But as often is the case in Indonesian law-making, these are weakly articulated and sometimes undermined in implementing regulations.

Risk monitoring and compliance will be critical during the early years of the law’s implementation and will determine whether the government can manage corruption and wastage risks. One core tension in the law’s implementation is the need to balance stipulated financing with villages’ ability to use more funds efficiently, as well as national and district governments’ capacities to reallocate funds.

Indonesia’s village law has the potential to reduce poverty and social inequality by driving investment in community-identified productive infrastructure and providing public services. These outcomes will become a reality only if there is strong upward accountability for village governments that complements pressure from empowered citizens to work in the interest of the community. Reform and improved performance are a result not only of state policies but also of villagers’ efforts—hence the importance of revitalising association life and developing community capacity as part of the self-governing community model introduced with the law.

The basic premise of the law is that communities shall administer their villages themselves, and is built on 15 years’ positive experiences of providing direct block grants to communities through PNPM Mandiri. This entails the existence of village authorities endowed with democratically constituted decision-making bodies that possess a wide degree of autonomy. But self-management also requires capacity, which varies greatly across the country.

To foster responsive and accountable local government, interventions and policy reforms are needed to support empowered and inclusive communities; the poorest and marginalised must have a say in decisions and the distribution of development funds at the community level. Strong and democratic village institutions are needed that can carry out integrated, participatory planning; implement and oversee development projects; and act as guardians for community priorities. The village law is a move in the right direction, full of promise…and peril.

Hans Antlov is Technical Director at the Knowledge Sector Initiative in Jakarta.  Leni Dharmawan is an Independent Consultant. Anna Wetterberg is a Social Science Research Analyst at RTI International.

This article is based on the authors’ recent publication in the Bulletin of Indonesian Economic Studies.