For the People, By the People in Indonesia

How one of Southeast Asia's most corrupt countries gave power over funding to its poorest citizens.


Note: This article is an abridged version of two case studies (here and here) produced by Innovations for Successful Societies, a research program at Princeton University.

Note: This article is an abridged version of two case studies (here and here) produced by Innovations for Successful Societies, a research program at Princeton University.

Recently, Indonesian lawmakers voted to eliminate direct elections for local government throughout the country. To put it lightly, this is an attack on the democracy that has drawn accolades in recent years. In July, after the losing presidential candidate Prabowo Subianto finally (and humbly) accepted defeat, many were quick to hail the strength of Indonesian democracy — the peaceful transfer of power has always been a valuable test of democratic vitality. But with this latest piece of proposed legislation, the country threatens to stagger backward, following countries like Turkey and Egypt in a hasty retreat from democratic principles.

This backpedaling threatens an Indonesia that has spent decades building up its citizenry, promoting inclusion, and going to great lengths to root out corruption. Today, the country faces distinct challenges — including a weakening economy, which over the past year suddenly saw rising inflation and faltering growth. High sales in natural fuels helped the country boom, but masked core problems of a bloated bureaucracy, corruption, and neglected infrastructure. But this isn’t the first time Indonesia has dealt with such difficulties.

Similar challenges emerged in mid-1997, when the Asian financial crisis struck Indonesia, reversing years of economic progress and plunging millions of rural poor below the poverty line. Later that year, Indonesia faced massive crop failure as a result of drought and forest fires caused by El Niño. The country’s leaders had to act quickly to provide relief and cushion the economic impact on poor rural households. It was precisely at this critical moment that Indonesia made the decisive decision to invest in widespread expansion of bottom-up building and relief.

Indonesia expanded a previous pilot project based on community-driven development, where block grants were given directly to poor communities to determine for themselves how to use the funds, whether for infrastructure, health, or education opportunities. Over a period of 15 years, with large sums of cash passing hands and few instances of corruption, the program managed to help bring half of Indonesia’s 70,000 villages out of poverty.

A few years before the financial crisis, the Ministry of National Development Planning, called Bappenas, first launched a series of experiments to improve livelihoods and reduce regional inequality. Some of these experiments transferred money from the central government to village chiefs, who then took charge in helping poor residents buy livestock or other assets. Other experimental projects used labor-intensive methods for village infrastructure construction. But in all cases, some of the resources failed to reach the intended beneficiaries and ended up, instead, in the pockets of local leaders or politicians. 

In early 1997, Bappenas worked with the World Bank to launch a different pilot community-driven development project in 12 of Indonesia’s 4,000 sub-districts, each of which comprised 20 or so villages. The Kecamatan Development Program (KDP) program transferred funds directly to villagers, not the chiefs, and then helped the villagers organize to hold each other accountable for the use of the resources. When the financial crisis and El Niño struck, forcing the value of the country’s currency, the rupiah, to collapse, Bappenas appealed to the government to implement a nationwide expansion of this pilot project, funded by a loan from the World Bank.

The Bappenas team was faced with a daunting challenge: expanding its pilot project to tens of thousands of villages over an archipelago of 17,000 islands. While scaling the project up, the team had to ensure that funds actually reached the villagers that truly needed the aid — battling rampant corruption while improving involvement at the local level. In order for the rural poor in many parts of the country to benefit, the new program would have to empower people so that they could hold their institutions and leaders responsible. And crucially, the design would have to provide a voice for women and other marginalized community members.

To further complicate matters, the country faced a new political crisis. In 1998, public demonstrations and frustration with corruption, combined with economic instability, triggered the downfall of President Suharto after more than three decades in power. For the Bappenas team, the proceeding period of reform created an opportunity to capitalize on high-level political support for their program.

During the expansion, the Bappenas team focused on utilizing competition to decrease corruption and improve transparency. In earlier experiments, village chiefs and their families frequently kept the benefits of government programs for themselves. The Bappenas team members reasoned that they might be able to reduce "elite capture" by distributing project support to villages on a competitive basis. They implemented a grant competition in which each district would select a democratically elected, gender-balanced committee to oversee financial transactions and verify the results of the competition. The committee and its facilitators would organize project-proposal meetings in the hamlets and convene open meetings to discuss project ideas. Residents from each village would select two priority projects — with at least one coming from a women’s group — and prepare thorough project proposals to be submitted to the committee for the competition. The committee would evaluate the proposals based on feasibility, impact, and the village’s history of project completion — and winning proposals would receive help from private consultants to implement their ideas.

The Bapenas team also added financial checks to protect project funds from unauthorized diversion. Villages with winning projects had to prepare grant agreements including details of the project design, a budget, a map, and the amount of the community contribution. The information was posted in public spaces. The district’s financial-management unit then submitted a funding request to its local government to set up a special bank account, and they would only be able to withdraw money after collecting a number of official signatures from representatives and project managers. On top of this, the funds were dispersed in increments based on the achievement of certain project goals, all of which involved villager oversight and involvement.

This emphasis on the direct involvement of villagers in government programming afforded the project its great strength and successes — which goes to show that Indonesia’s current government to emphasize, not limit, public participation in governance. Through the KDP, the Indonesian government invested in its citizenry. They employed a group of consultants (the National Management Consultant team) and district coaches who monitored the projects, built awareness of the program, trained villagers in project and budget management, and helped to implement and troubleshoot new programs in the field. Bearing in mind the importance of reducing regional inequality, the teams also set rules to guarantee the representation of marginalized groups. For instance, because traditional gender roles sometimes discouraged women’s participation at community meetings, the team improvised that women be allowed to meet separately and devise their own proposals beforehand. One of every three village representatives at each level had to be female, as did 30 percent of the participants in village meetings. Facilitators could adjust the timing of meetings so that larger numbers of women could attend. Sujana Royat, a director with Bappenas, said: "Our role was to convince people and community groups that it is your money. You have to watch this and have the right to ask where even one rupiah goes and to whom."

Additionally, a big part of the facilitators’ job was to elicit active participation in a country where it was discouraged. Sri Kuntari, one of the KDP’s early facilitators based in West Java, commented: "It sounds very simple, but it wasn’t that easy at the time. Because of the authoritarian government, people weren’t used to speaking, and all structures were co-opted by the elite." In producing active participation, the facilitators had to grapple with the sweeping authority of the village chiefs. Kuntari explained: "The village chief is a very powerful person. He controls everything. He dominates the discussion in village meetings and has the power to stop a meeting and tell everyone to go home [or] instruct people not to come to meetings."

The facilitators recognized that they couldn’t easily resolve these roadblocks, so they tried various workarounds, coaching new recruits about how to do their jobs without offending their village leaders. To keep village members accountable, they created a system for soliciting and handling public grievances, tips, and complaints. Field staff provided citizens with guidelines on the criteria to lodge complaints with their facilitators either in person, in writing, and later, via text messages to a hotline.

This publicly maintained accountability was able to decrease corruption precisely because the process involved and implicated entire villages. KDP planners were able to suspend funding if there was a misuse of funds or fraud, as Scott Guggenheim, a World Bank advisor, explained. "If a village committed an infraction, we could suspend the entire [subdistrict]," he said. "If it was the [subdistrict], we could suspend the [district]. That puts a lot of social pressure [to fix the problem]." The KDP publicized any cases of corruption as well as the enforcement measures taken against the offenders. If government officials were the source of the problem, communities could bring legal cases against them with the help of NGOs. From 2000 to 2001, three years into the program, 5 percent of the KDP’s technical staff was replaced for corrupt practices, complicity, or failure to report corruption. By 2002, at least 12 government officials incurred fines or received prison terms for misuse of KDP funds, according to Guggenheim’s reports.

Provinces that failed to act on corruption cases realized they could lose program funding if they did not comply. In later years, KDP organizers were able to chose and design projects less vulnerable to corruption, based off of information from previous years. What’s more, the flexibility of the project’s design was a distinct advantage in conflict-prone areas such as Aceh, East Timor (which became independent in 2002), and Papua, where organizers were able to soften the competition. Rebels were likely to allow projects to continue upon learning that the communities themselves ran them.

Overall, the project was a huge success — though critics did point out that most of the projects were centered on building high-quality infrastructure. Over time the planners encouraged villagers to diversify projects, but the public works projects often had important social impacts that standard metrics did not take into account. Guggenheim pointed out, for instance, that roads "make a huge difference to people when it comes to maternal mortality and to education." The original 1997 pilot consisted of 25 villages. By 2006, it was reaching 34,233 villages, nearly half of all villages in Indonesia. From 1998 to 2006, KDPs helped villages build or rehabilitate more than 65,500 kilometers of roads, 9,000 bridges, 11,000 irrigation systems, 28,300 drinking-water systems, 17,500 sanitation facilities, 6,950 schools, 120,000 scholarships for poor students, and 5,700 health posts. By 2007, more than 6.1 million villagers earned direct short-term employment; nearly half of them (45 percent) were women or rural poor.

Not all evaluations found community-driven efforts the most effective in reducing corruption. A donor-funded, randomized controlled trial conducted in 2003 to 2004 found that government audits reduced corruption more effectively than grassroots participation in community accountability meetings. Still, the KDP’s effectiveness in improving the lives of some of Indonesia’s poorest rural residents stemmed from senior managers setting a high premium on monitoring and learning. (The photo above shows President Joko Widodo inspecting an urban development project in Jakarta.) 

The KDP project produced low levels of corruption won high praise and popularity. Other countries, most notably the Philippines and Afghanistan, borrowed from the KDP model to implement community-driven development projects at home. Starting in 2006, the Indonesian government, headed then by President Susilo Bambang Yudhoyono, expanded the program even further, to the rest of the country, aiming to reach every village and increase the number of social programs aiding marginalized populations. The project was a major challenge, requiring thousands more trained facilitators as well as deeper engagement with local governments — but in 2013, the legislature approved a new law that built KDP/PNPM into national law as part of its effort to improve participation, transparency, and accountability. It is programs like these that have contributed to Indonesia’s burgeoning reputation as a "role model for democracy" — despite its staggering economy and recent election kerfuffle. To be sure, backtracking on inclusion is not going to solve Indonesia’s problems — and its leaders would be wise to remember the strengths its citizens have to offer.

Jeremy Rotblat contributed research and editing to this article.

Rushda Majeed is a researcher and consultant focused on institutional and policy reform. Twitter: @RushdaMajeed

More from Foreign Policy

Keri Russell as Kate Wyler walks by a State Department Seal from a scene in The Diplomat, a new Netflix show about the foreign service.
Keri Russell as Kate Wyler walks by a State Department Seal from a scene in The Diplomat, a new Netflix show about the foreign service.

At Long Last, the Foreign Service Gets the Netflix Treatment

Keri Russell gets Drexel furniture but no Senate confirmation hearing.

Chinese President Xi Jinping and French President Emmanuel Macron speak in the garden of the governor of Guangdong's residence in Guangzhou, China, on April 7.
Chinese President Xi Jinping and French President Emmanuel Macron speak in the garden of the governor of Guangdong's residence in Guangzhou, China, on April 7.

How Macron Is Blocking EU Strategy on Russia and China

As a strategic consensus emerges in Europe, France is in the way.

Chinese President Jiang Zemin greets U.S. President George W. Bush prior to a meeting of APEC leaders in 2001.
Chinese President Jiang Zemin greets U.S. President George W. Bush prior to a meeting of APEC leaders in 2001.

What the Bush-Obama China Memos Reveal

Newly declassified documents contain important lessons for U.S. China policy.

A girl stands atop a destroyed Russian tank.
A girl stands atop a destroyed Russian tank.

Russia’s Boom Business Goes Bust

Moscow’s arms exports have fallen to levels not seen since the Soviet Union’s collapse.