As a process that tends to span decades, decentralisation in Indonesia continues to frustrate foreign businesses with confusion over the roles of central, provincial and local governments and solving problems over interministerial coordination. The experiences of many foreign companies tell of endless frustration over such challenges exacerbated by the evolving nature of decentralising institutions and weak institutional capacity.

Those considering investment in a decentralised nation such as Indonesia however need to understand the unique challenges that exist when developing sustainable community development initiatives. Private sector and financial investors alike are certainly aware of the type of favourable opportunities that emerge when these relationships are constructive, but, more importantly, are also aware of the risks associated with poor working relationships with local government and community leaders.

However, despite the number of key challenges to business, which admittedly can at the best of times be a difficult and challenging process, there is an increasing business case for companies working in Indonesia to engage with local governments and community leaders. Building links with the local community, personalising relationships, and earning respect at a grass-roots level can assist communities develop in a sustainable manner and simultaneously help a business to succeed.

The continued experiences of companies working in decentralised economies demonstrates a number of key challenges including confusion over the roles of central, provincial and local governments and with local communities, and solving problems concerning inter-ministerial coordination. Technically, Indonesia’s decentralisation process has been the transfer of decision making power and assignment of accountability and responsibility for results from central to local government. This means that local governments have become prime decision-makers in community planning, budgeting, and program implementation – theoretically to promote more efficient provision of public goods and services. However, it is a process that often spans decades and even today there remains a lack of clarity on central, regional and local government roles and functional assignments in service delivery.

Interestingly one of the key instruments to have emerged as part of the decentralisation process has been legislation and regulations for community participation in local level policy, planning and program implementation. This includes what is known as the Musrenbang process (Musyawarah Rencana Pembangunan or Multi Stakeholder Consultation Forum for Development Planning) in Indonesia.¹ As stipulated in Indonesian legislation, each community now has to actively prepare a development plan which articulates tangible programs and services based on community aspirations.

The important point here for companies seeking to invest in Indonesia is that the most effective use of corporate investments in local community development is in support of existing programs that provide additional skills and resources where appropriate. In other words, corporate community development programs should be clearly defined in cooperation with central and local governments and local community. In countries such as Indonesia where active decentralisation policies are taking place, it is therefore imperative for companies to be aware of the Musrenbang process, related local government development planning and the implications for their community development funding initiatives.

As a key central government instrument to participatory planning, the Musrenbang process is one that seeks to promote negotiating, reconciling and harmonizing differences between government and nongovernmental stakeholders, as well as reaching collective consensus on development priorities and budgets. The process is one that seeks to actively involve all members of society in community planning starting from the village level in the form of public hearings and participatory planning, then moving to a sub-district level. Results from the Musrenbang process are then complied at a regency level where the Regency Development Planning Agency (Bappeda) integrates the results into a Regency Development Plan document. In support of this participatory Musrenbang process, a number of regional governments have tried to increase participation by passing local bylaws (perda) to legislate transparency in budgeting and deepen the consultative approach down to the community level.

The plans from the Musrenbang process are a valuable guide for companies seeking to “fit in” and integrate “engagement” into core business activities. Companies need to grasp the importance of actively developing and sustaining relationships with affected communities and other stakeholders throughout the life of their project, and not simply during the initial feasibility and assessment phase. It is important that they work with those who understand the local planning context and determine how best to reap the benefits of improved risk management and better outcomes on the ground.

Taking part in the Musrenbang process also manifests as a valuable opportunity for companies to engage with stakeholders from the start, enhance their understanding of local interests and needs, stay up-to-date on local government policy and plans, and monitor local dynamics. Early engagement in this way sends the crucial message that companies value the input of communities. It also enables a proactive cultivation of relationships that serve as ‘capital’ during challenging times.

Article by Dr Kathleen Turner, Manager Strategy, Griffith Asia Institute.

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¹ The Indonesian Government originally passed legislation, Law No. 25/2004 on National Development Planning, which institutionalised Musrenbang at all levels of government over several time frames – long-term, medium-term and annual plans. It also emphasised the need to synchronize all approaches — political, democratic, participatory; bureaucratic, technical, bottom-up and top-down – into regional planning.