THE GOVERNMENT STATEMENT ON THE REGIONAL DEVELOPMENT POLICY

Bismillahirrahmanirrahim,
Assalamualaikum Warahmatullahi Wabarakatuh,

May we all be bestowed with well-being,

Honourable Speaker, Deputy Speakers and Members of the Regional Representatives Council,

Esteemed Chairperson, Deputy Chairpersons, and Members of State Institutions,
Excellencies, the Ambassadors and Representatives of International Agencies and Organizations,

Ladies and Gentlemen,

Fellow countrymen,

Let us offer our praise and grace to Allah SWT for, on this auspicious day, we are able to attend the Plenary Session of the Regional Representatives Council (DPD) of the Republic of Indonesia. I would like to seize this opportune occasion to express my gratitude to the Council, which has provided me with the opportunity to present the Government Statement on the Regional Development Policy, which covers the progress and future direction, and a short explanation on the State Budget (APBN) allocation in the interest of the regional development. As we are aware, on the past 16 August 2005, I have delivered a State Address and the Government Statement on the Bill on the State Budget (RAPBN) for 2006 accompanied by its Financial Note before the House of Representatives (DPR) to be jointly deliberated, by paying due attention to the consideration provided by the Regional Representatives Council. Pursuant to the provisions of Article 44 of Law Number 22 of 2003 on the Structure and Position of the MPR, DPR, DPD, and DPRD, the said consideration is submitted by the DPD to the DPR. Consequently, I am really of the hope that the DPD will be able to provide a most careful consideration in the deliberations of the RAPBN. Therefore, the regional aspirations will truly be reflected in the decision to be taken in adopting the State Budget (APBN) for the Year 2006.

As a newly-established state institution resulting from the amendment to the 1945 Constitution, I am very hopeful that the DPD will play an active and constructive role, in accordance with its duties and authorities, as governed under the 1945 Constitution and the prevailing laws. I trust that the honourable Members of the DPD, who were elected directly by the people through democratic elections in 2004, are the best sons and daughters of the nation who have been placed with the trust of the people in the regions to bear and voice the regional aspirations. For this reason, I am of the confidence and belief that you will all be able to execute the mandate that have been entrusted upon yourselves, in equal fashion to the weight that has been placed upon myself and the Vice President. During the ten-month period of running my administration, I am under the impression that the partnership relations between the Government and the DPD have been nurtured in a manner consonant with our common expectations. For this laudable cooperation, permit me to extend my highest gratitude and appreciation. Let us hope that, in the future, this good cooperation could be built upon even more.

The existence of the DPD cannot be separated from the wish of all the people that our governance do not take a centralistic nature. Since the implementation of the regional autonomy in 1999, the governance affairs that fall under the purview of the Central Government cover foreign policy, defense, security, justice, national monetary and fiscal, and religious affairs. The remaining authorities are vested upon the regions, unless separately regulated under the provisions of Article 10 paragraph (4) and paragraph (5) of Law Number 32 of 2004 and elaborated in detail in Government Regulation Number 25 of 2000 on the Authorities of the Government and the Authorities of the Provinces as Autonomous Regions. The DPD was established as the continuation of the implementation of the regional autonomy policies that we have carried out in earnest since 1999. Different from the DPR, which membership composition corresponds in an equitable manner to the number of population in each province, the number of DPD members is identical for every province. Consequently, the regional interests will be equitably represented in the DPD. Indeed, I am aware that it would not be easy to channel the aspirations of our regions that are highly pluralistic, be it in the pluralism of their communities, as well as the degree of development progress that has been achieved. However, imbued with perseverance, prudence, and a wise and judicious attitude, I am confident that we shall be able to realize the regional aspirations in carrying out the national development. Therefore, a dynamic balance will be created between the national interests and the regional aspirations within the receptacle of the Unitary State of the Republic of Indonesia.

It is obvious that the implementation of the regional autonomy has yet to fully proceed in a smooth manner. We are still encountering various impediments, be they political as well as administrative. However, I believe that, gradually, we shall be able to carry it out in a manner that would meet our common hope. Implementing something that we deem to be ideal will, certainly, be faced with various hinderances.

Nevertheless, I trust that, aside from upholding idealism, we must also be realistic by paying attention to the realities we are facing. We all have good intentions, namely to advance the life of the nation and the state. Hopefully, this noble and sincere intention will facilitate us in achieving the objectives of the establishment of our state, namely to protect the entire Indonesian nation and the whole Indonesian homeland, improve the public welfare, advance the intellectual life of the people, and contribute to the establishment of a world order based on freedom, abiding peace, and social justice. It is towards this direction that we are moving forward. For this reason, I invite all the regions to, shoulder to shoulder, collectively strive to develop the nation and give substance to the independence, by preserving and maintaining the unity of the nation. The multi-faceted regional interests must be channelled in a wise and judicious manner, in order to avoid from disturbing the robust standing of the unity and integrity of the nation.

Honourable Speaker, Deputy Speakers, and Members of the Regional Representatives Council,
With the previous introduction and expectation, allow me to subsequently present the Government Statement on the Regional Development Policy, the progress and future direction that we wish to achieve. These policies, of course, are not separable from the context of implementing the National Medium-Term Development Plan as enacted in the Presidential Regulation Number 7 of 2005, and the Government Work Plan that are annually incorporated into the Law on the State Budget.

Based on the mandate of Law Number 22 of 1999, as amended by Law Number 32 of 2004 on Regional Governance, and Law Number 25 of 1999, as amended by Law Number 33 of 2004 on the Financial Balance between the Central Government and the Regional Governments, the majority of the authorities and affairs of governance and its sources of financing have been transfered from the Central Government to the Regional Governments. The process of decentralization and regional autonomy that have taken place for several years, at the outset, was enveloped in doubts and concerns in their potentials in causing the disintegration of the nation. These concerns were indeed founded, for the decentralization was conducted in a progressive, rapid manner, and without going through a transition period. Meanwhile, at the beginning of the Reform era in 1998, we were engulfed in an economic crisis that resulted in a crisis of trust towards the government, both at the centre as well as in the regions. At that time, we were also facing precarious situations in the regions, due to the occurrence of horizontal conflicts that have taken a significant toll on human lives and properties. We were also facing the vigorous flow of economic globalization. Countries in the Southeast Asia region were together facing the monetary crisis, which caused quite a high level of anxiety in this region. In such a situation, the implementation of the decentralization policy was faced with several daunting challenges.

The implementation of the Regional Autonomy in these last years constitutes as such an invaluable experience and lesson to all of us in developing better decentralization and regional autonomy policies in the forthcoming years. We are aware that there is still a long way ahead of us, on the road towards a better situation that would meet our common hope. We are of the wish that our pluralistic nation could truly enjoy the benefit of the presence of the Unitary State of the Republic of Indonesia, so that not a single region feels left behind and underdeveloped. For that reason, fundamental improvement in public services in all regions is necessary, through a pattern of governance management that is more democratic, responsible, professional, and responsive, and decentralized. In essence, decentralization and autonomy are intended to bring the government closer to the people. Therefore, the Government would be able to provide services and carry out the wishes of the entire people in a better, quicker, and more accurate manner.

The challenges we are facing are indeed not easy. Aside from a number of difficult state problems that appear alternately, at the same time we must also be able to reverse the centralistic governance pattern of thinking that have endured for more than one generation. Meanwhile, the capacity of the regions in performing larger and more important functions and roles, which are in line with the regional autonomy policies, have not proceeded as we would have expected. Such a condition often causes us a dilemma in taking a decision and in implementing a policy. In consequence, our wish that a decision could be immediately taken and the policy implemented quite often experience impediments.

We are also still faced with weaknesses in human resources, in various regions. The mentality of the governance apparatus has yet to be fully transformed, even though the reform has been in place for more than seven years. The tendency to being served is still prevalent in various government agencies and institutions. Whereas, the duty of the state apparatus is to serve the people and meet their needs. The ills of corruption, collusion, and nepotism are also still occurring. With the transfer of financial management to the regions, the tendency of the increase in improprieties and embezzlements in the regions is also on the rise. The Government is currently attempting to overcome this situation, not only by taking firm actions against corruption, collusion, and nepotism practices, but also by tightening the supervision of the state finances and perfecting the accounting system of the state finances, in order to make it difficult for embezzlements to occur.

Our country that is truly vast and consists of thousands of islands is also a factor that causes the governance management in the regions to become less easy and simple. The number of our provinces now totals 33, while the regencies and municipalities total 440. The holding of the general elections in our country, be it for the representative agencies, the President and Vice President, as well as for the regional heads, are among the most complicated general elections conducted in the world. However, due to our strong determination and will to build a sovereign, united, just, and democratic nation, by the grace of God, we have surmounted all those obstacles. It is obvious that we would like to perfect the shortcomings, so that all the hopes and wishes could be turned into reality. We shall continue to strive to overcome the various prevailing deficiencies and weaknesses. For that matter, I hope that a close cooperation could be established between the state insitutions, particularly the Regional Representatives Council.

The implementation process of the decentralization and regional autonomy is currently still focused on the effort to formulate and perfect the various implementing regulations of Law Number 32 of 2004 on Regional Governance and Law Number 33 of 2004 on the Financial Balance between the Central Government and the Regional Governments. In the ten-month period of my tenure, I have completed 16 Implementing Regulations for those two laws, that cover the division of authorities between the levels of governance, the regional governance institutions, the rules of procedure of the organization of the Provincial House of Representatives (DPRD), the monitoring mechanism over the conduct of regional governance, the guide to the formulation and implementation of the Minimum Service Standards (SPM) to guarantee the quality of public services, and a number of arrangements to facilitate the enhancement of the regional capacity, notably in the aspects of its institutions, apparatus, and finances.
With a view to realizing the decentralization and regional autonomy that is truly oriented towards the improvement of public services, a balance needs to be realized between the capability to implement the authorities that have been conferred upon the regions and the capability to finance their development. The above overall aspects need to be rearranged in a systematic, and planned manner, and full of maturity. The handling of this issue will involve various sectoral elements at the central government, provincial governments, as well as the regencial/municipal governments. The coordination, communication, and synergy between the various levels of governance become of the utmost importance. Without these efforts, it would be extremely difficult to implement the various policies that have been agreed together.

In realizing the decentralization and regional autonomy in a consistent and effective fashion, various sectoral rules and regulations that have been applied for years need to be adjusted and synchronized with the new provisions. A clarity in the arrangement of authorities between the levels of government has become an urgent necessity. In consequence, the existence of legal certainty would be created, which constitute important prerequisites for carrying out an orderly conduct of governance. Equiped with the said clarity and legal certainty, the officials from every level of governance will know precisely what constitute their duties, authorities and responsibilities. This is an absolute must to avoid the incidence of overlapping authorities in the conduct of governance affairs.

Honourable Speaker, Deputy Speakers, and Members of the Regional Representatives Council,
Fellow countrymen,

In the context of realizing the implementation of a more responsible decentralization, I have completed a number of implementing regulations regarding the election, adoption, appointment, and dismissal of the Regional Heads and Regional Deputy Heads by virtue of Government Regulation Number 6 of 2005. This Regulation was later perfected by Government Regulation Number 17 of 2005. This regulation form the basis for the conduct of various direct regional head elections (Pilkada) by the people in various regions of the country. In order to overcome the deficiencies in Law Number 32 of 2004, which has yet to govern the possibility of postponing holding the Pilkada due to natural disasters and disturbances, I have issued Government Regulation In Lieu of Law Number 3 of 2005. I have also completed drawing up Government Regulation Number 54 of 2005 on the Papua People’s Assembly that is a mandate of Law Number 21 of 2001 on the Special Autonomy for the Province of Papua. At nearly the same time, I have also issued Presidential Regulation Number 28 of 2005 on the Advisory Council for Regional Autonomy that consists of ministers.

With respect to the special autonomy in Papua, I wish to convey that the existence of the Province of Papua and the Province of West Irian Jaya, which was formerly named West Irian, have since long become integral parts and lawful parts of the Unitary State of the Republic of Indonesia. The reasons pertaining to this matter have been expounded in my State Address before the DPR on the past 16 August. The entry into force of the special autonomy in Papua is intended to reduce the disparity, increase the standard of living of the people, and provide the opportunity particularly for the native inhabitants of Papua to build their region in accordance with the aspirations of the people and the Regional Government. For this reason, the regional government must astutely utilize this opportunity, and work more seriously and harder to advance its region with a complete sense of responsibility.

The future effort that must immediately be carried out by the Government of the Provinces of Papua and West Irian Jaya, pursuant to Government Regulation Number 54 of 2004 on the Papua People’s Assembly (MRP), is to establish the MRP institution as an agency that plays a role in providing considerations and approvals in the formulation of regional policies and in the framework of attempting to bring equity and diversity into the lives of the people of Papua. The Government wishes to affirm that the existence of the Province of West Irian Jaya is lawful from the standpoint of the law of our state. The judicial review conducted by the Constitutional Court, which has abrogated Law Number 45 of 1999, does not cause the said province to lose the legal foundation for its establishment, since the ruling of the Constitutional Court is not retroactive. The implementation of governance in the Province of West Irian Jaya is now based on Law Number 32 of 2004 on Regional Governance, similar to the case of other provinces. Therefore, I invite all parties to collectively abide by the law and abide by the ruling of the Constitutional Court with a sense of complete responsibility.

Nevertheless, in implementing the special autonomy for Papua, I understand that there remain many issues here and there. The implementation of the special autonomy for Papua has yet to bring direct impact on the advancement of the socio-economic lives of the people, particularly the native people of Papua. Therefore, I invite the Regional Government and the people in Papua and West Irian Jaya to immediately cease all differences, and begin to focus their attention to developing their region and catch up their lag to the other regions. The Central Government has submitted the special autonomy fund, in accordance to the law, to the Government of the Province of Papua. Consequently, do utilize the available fund so that the people in Papua and West Irian Jaya could immediately feel the benefit of the special autonomy in those regions.

Subsequent to the signing of the Memorandum of Understanding between the Government and the Free Aceh Movement (GAM) on the past 15 August, the Government has now begun to take steps toward implementing that agreement. I have requested the consideration of the DPR to grant amnesties and abolitions to every one involved in GAM activities. A number of other agenda will be immediately carried out, including formulating a new Bill of Law on the special autonomy for Aceh. The implementation of other elements of the agreement, including the surrendering and destruction of arms belonging to GAM and the withdrawal of the TNI troops and non-organic Polri members, will be immediately carried out. The programme and process of reintegration of former GAM members into our society have been and are still being prepared in greater detail, with the full support of the related ministries, the Nanggroe Aceh Darussalam Government, and the foreign donations. Other matters pertaining to Aceh and also Papua, in the context of the Government policy in handling and settling conflicts, be they horizontal as well as vertical, will be explained in subsequent explanations in this Government Statement. On this occasion, I wish to reaffirm that in conducting the informal talks with GAM figures in Helsinki until the signing of the Memorandum of Understanding, the Government has steadfastly upheld the principles that can no longer be negotiated, namely: the Unitary State of the Republic of Indonesia remain standing strong with a territory from Sabang to Merauke; the Red and White flag remain fluttering; and the Special Autonomy in Aceh continue to be implemented. In the conduct of those informal talks, the Government also upheld the provisions of the 1945 Constitution and other rules and regulations.

Honourable Speaker, Deputy Speakers, and Members of the Regional Representatives Council,
Fellow countrymen,

Amidst all the inadequacies, the implementation of the decentralization and regional autonomy have now produced several heartening results. The transfer to the regions weighted against the domestic revenue of the Government has increased from 14.9 percent in 1999 to 32.7 percent in 2003. This proportion has remained relatively stable until 2005. The transfer to the regions in block grants weighted against the domestic revenue of the government has jumped sharply from 12.9 percent in 1999 to at least 25 percent since first put in place in 2001. These increases signify that the fund potentials to meet the development needs of each region grow even larger. The regions have more opportunities and capabilities to design themselves the fund use that is commensurate with the specific interests of those regions.

Meanwhile, the spirit of the regions in providing better services to the people, in the fields of education, health, and basic infrastructure, is quite encouraging. Even though we can also observe that some cases demonstrate the attention of the Regional Governments that is still weak with regards to those fields. In several regions, we can also witness the development of various means that actually do not touch enough upon the direct interests of the people. It is not uncommon that those activities distort the activities of the regional economy. However, generally speaking, the attention of the Regional Governments toward the development of their human resources start to show signs of improvements. This is consistent with the priority of the national policy that provide extremely high attention to the enhancement of the quality of human resources. A positive outcome from this endeavour is the increase of the Human Development Index (IPM) figure posted in all of the provinces, except in the Moluccas. This is due to the communal conflicts in that region, that are carried over into the educational field. The increase of the IPM figure in practically all of the provinces brought the average national IPM higher from 64.3 in 1999 to 65.8 in 2002.

Indeed, in its implementation, the performance of its management has yet to display a concrete difference between the period prior to and following the carrying out of the decentralization. This is actually due to the unfinished division of authority and financing between the levels of governance up to the present. However, several regions have applied various innovations that have succeeded in enhancing the quality of services to the people. This success is generally brought about by a clarity of vision, the strength of leadership of the regional heads and their high commitment to improve the welfare of their people, the implementation of the principles of good governance, and the involvement of the people and the business world in the active participation in development decision making.

I, along with the United Indonesia Cabinet, have a high commitment to continue carrying out, at the same time, securing and perfecting this process of decentralization and regional autonomy. This commitment is embodied in the elaboration of our Vision and Mission in the document entitled the National Medium-Term Development Plan (RPJMN) for 2004-2009, which places decentralization and regional autonomy as inseparable parts of the efforts to create a nationhood and statehood that is safe and peaceful, just and democratic, and prosperous. Mindful of the various problems that are still being faced and the outcome of the implementation of the decentralization and regional autonomy policies during this period, a definite revitalization and plan of action towards the future is necessary. For that purpose, the RPJMN has set six policy directions that cover the clarifying of the division of authority between the levels of governance, encouraging interregional cooperation in the context of enhancing the public services, arranging the institutions of the regional government to make them more proportional and professional in accordance with the real needs of the regions, preparing a regional government apparatus that is qualified based upon standards of competence, increasing the financial capacity of the regional government, and arranging new autonomous regions, including assessing the policy implementation of establishing new autonomous regions in future times.
These policy directions shall be consistently elaborated into various policies and activities in the Government Work Plan (RKP) and the State Budget (APBN) in future times. With the intention of providing a clear direction for the implementation of the autonomy, the Government is currently drawing up a grand design of strategies and plans of action to rearrange the implementation of the decentralization and the regional autonomy. This grand design encompasses seven basic elements that construct the entity of the regional governance, namely governance affairs, institutional, personnel, regional finance, representation, public services, and supervision matters.

Honourable Speaker, Deputy Speakers, and Members of the Regional Representatives Council,
Regional development, other than being an integral part of the national development, and aside from having an interest in the conduct of activities in sectoral development in the regions, also has an interest in development activities in a territorial dimension. Where the first interest relates to the objective of achieving the national sectoral targets in the regions, then the second interest concerns with the objective of reducing the interregional inequalities, and at the same time integrating the intersectoral development within an area.

In this connection, allow me to put forth the progress of the implementation and the way forward of the policies on regional development that relates to the territorial dimension. The extent of the geographic width and variety of the Indonesian territorial characteristics necessitate a national strategy with a territorial dimension, notably to deal with territorial issues that constitute the national interests. Within the National Medium-Term Development Plan for 2004-2009, that national strategy is incorporated in the consideration of development issues for the least developed areas, included therein are the border areas, the strategic and rapidly-developing areas, the conflict areas, and the urban areas.

Up to the moment, as a result of the differing development accelerations, the Indonesian territory is still confronted with the interregional inequalities. Through the various measures undertaken by the government since the period of the New Order, the degree of interregional inequalities has indeed decreased compared to the situation of twenty five years ago. Yet, the speed by which those inequalities decrease is very slow. Until this very moment we can still discern a difference of development outcomes that is glaring between the provinces within Java and the provinces outside of Java. This is also true between the provinces in the Western Part of Indonesia and the provinces in the Eastern Part of Indonesia, and between the least developed areas with the developed areas.

The progress of development in various sectors that have been achieved by the Island of Java constitute as a strong attraction force to the inhabitants of other regions to migrate to this island. The concentration of our inhabitants is around 60 percent in the Island of Java, which area is only 6.7 percent of the Indonesian territory. On that account, on this area, innumerable conflicts of interest or conflicts of land use occur, which could hamper the continuity and progress of the economy and production, and the welfare of the people. The land conversion in the Island of Java ---from a productive land to an industrial and housing land--- reaches 50 thousand hectares per year. This situation has taken place for nearly the last thirty years. With the increase of population density and narrowing of land, the ability to support life on the Island of Java continue to be threatened. The Island of Java has experienced a water crisis, both clean water for household needs and for irrigation. Should determined efforts to overcome it not be undertaken, then in the coming years this water crisis will worsen further.

The progress of regional development throughout this time does indeed not always happen in the Island of Java. Several areas outside of Java also have leading economic areas that develop rapidly, such as Medan, Makassar, and the Bonded Zone of Batam, and the province of East Kalimantan that is rich in crude oil and natural gas. However, those relatively developed areas are yet interconnected and unable to bolster the development of the surrounding territories that are still relatively lagging behind. The orientation and interrelatedness of the economic activities of those areas are still directed to the Island of Java. It is high time the strategy of industrial development and economic activities on those areas be directed at the interrelatedness of economic activities with the surrounding territory.

The effort to strengthen the economic and production bases outside of Java is also very crucial to strengthen the competitiveness and resilience of our national economy. The width of space and variety of natural riches that have been bestowed upon our nation still provide us with a large number of opportunities to be utilized in order to reach a higher added value. The serious effort to create new centres of economic activities, in proportion to the regional potential, necessitates support for the construction of adequate infrastructures. In the Island of Java, the construction of a number of infrastructures can be undertaken by involving the private sector since their economic calculation are feasible. In the meantime, the construction of infrastructures outside of the Island of Java quite often still need to be carried out by the government itself, which must be planned through an accurate, and strategic intervention.

In order to support the utilization of the size of the national space in an effective way, and the intersectoral and interregional integration on a sustainable basis, we require a zoning plan at various levels. At the national level, we already have the National Territory Zoning Plan (RTRWN) enacted by virtue of Government Regulation Number 47 of 1997. At the moment, that RTRWN is under the process of revision by taking into consideration the various challenges, among others globalization, decentralization, the regional autonomy, an equitable balance of development between the Western Region of Indonesia and the Eastern Region of Indonesia (KBI-KTI), and a better handling of the border regions with neighbouring countries. The formulation of that RTRWN is a mandate of Law Number 24 of 1992 on Zoning. As elaboration of that RTRWN, we already have at the moment a Bill of Presidential Regulation on the Island Zoning Plan (RTR), which include the RTR for the Islands of Java-Bali, Sumatra, Kalimantan, Sulawesi, and Papua.

Honourable Speaker, Deputy Speakers, and Members of the Regional Representatives Council,
The occurrence of interregional disparities, up to the present, causes us to still have several areas that are less developed. The people living in less developed regions are generally not yet touched by the development programmes, so that the access to social, economic, and political services are still very limited. Within the National Medium-Term Development Plan for 2004-2009, the Government has identified 199 regencies out of 440 regencies/municipalities in Indonesia as less developed regions. Twenty among them are border areas.

The backwardness of a region occurs not only due to the unvailability of proper potentials to be developed in an economic way. Its impenetrable geographic location is also one of the important factors, since it causes difficulties in the effort to provide infrastructures. The lack in infrastructures eventually results in the inferior utilization of the potentials of the natural resources and the inferior quality of the human resources in that region. At border areas, backwardness become a factor that give rise to the tendency of committing illegal activities that could incite social and political precariousness. At the present time, the Government has a great interest in enhancing the welfare of the people in backwarded areas, which is now specifically coordinated by the State Ministry for Development of Backward Regions, and the Department of Maritime and Fisheries Affairs for the outermost islands, and the Department of Social Services for Remote Traditional Communities. This partisanship is reflected in various development endeavours specially coordinated by the State Ministry for Backwarded Regional Development, by the Department of Maritime and Fisheries for the outermost islands, and the Department for Social Affairs for Remote Traditional Communities. These endeavours will continue to be improved upon in the future. With particular regard to the border areas, it is now being formulated an academic text on the Bill of Law on the Territorial Borders of Indonesia and a policy concept on strategy to manage the border areas. I sympathize deeply with the people who live at the forefront areas at the borders of our state. Their great feeling of love toward their homeland need to be always preserved by the presence of development activities that are real on those areas.

The forward direction of development for the backwarded areas is the empowerment of the society in a comprehensive and participative manner, covering the provision of educational, health, and basic infrastructure facilities. The socio-economic life is developed in conformity with the potentials in natural resources and local aspirations. Specific to the land border areas, an integrated development pattern will be developed by integrating the prosperity approach with the security approach. The development of centres of economic growth at areas of economic potentials is carried out selectively and gradually proportional to the national strategic priorities and interests.

In formulating the strategy for territorial development, in general, areas are designated and that will later function as centres of economic growth. Those areas are designated based upon the criteria of its inherent development potentials, its strategic location, and its strong influence in generating economic progress to their surrounding territories. The future objective of designating the areas known as strategic and rapidly-growing areas is basically to accelerate territorial development and, at the same time, interterritorial equity. Within the National Territorial Zoning Plan (RTRWN), these areas are defined as National Leading Areas. In the Government Regulation Number 47 of 1997 on RTRWN, 111 National Leading Areas have been designated all across Indonesia.

Several strategic and rapidly-developing areas are, currently, not yet developing themselves optimally. This is due to the limited means and infrastructure and market and technology information to develop leading products. In addition, there is still a weak coordination between actors of the territorial development in the effort to enhance the competitiveness of their leading products. Consequently, a close and integrated cooperation between the Regional Governments and the Central Government is needed in developing leading products in strategic and rapidly-developing areas.

In conformity with the interest to create centres of economic growth, notably outside of Java, the effort of development acceleration of those areas need to be carried out comprehensively in a pattern of approach that is currently known as cluster industry. The grouping of a number of related activities will facilitate and, at the same time, enhance the effectiveness of providing the required physical infrastructure and technology. To the business world, the same grouping will be beneficial in a constructive interaction, which serves as the basic principle for the realization of regional competitiveness and sustained production activities. In formulating the policy on national industry for 2005-2025, this pattern of approach constitutes as its main pillar.

With a view to enhancing the competitiveness of the national economy in the present globalization era, the government has granted the status of strategic development area as free port and trade zones, such as the Island of Sabang, or the special bonded zone, such as for the Island of Batam. However, this measure require judicious assessment in order to realize a mutually beneficial arrangement, be it between similar types of areas, as well as between those types of areas with other areas. Consequently, in order to avoid the development of ”enclaves” in the aforesaid areas, the Government encourages the setting up of economic interrelatedness that is mutually beneficial between the free port and trade zones or between the special bonded zones with their supporting areas through the development of raw material products.

In certain border areas, the efforts to make effective and widen the cooperation in regional economic development that are mutually beneficial with the neighbouring countries should be enhanced. These efforts include the enhancement of subregional economic cooperation that have been initiated previously, such as the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT), Indonesia-Malaysia-Singapore Growth Triangle (IMS-GT), and the Brunei Darussalam-Indonesia-Malaysia-Philippines East Asia Growth Area (BIMP-EAGA), and the Australia-Indonesia Development Area (AIDA). I call on the regional governments to play a more active part in implementing these cooperation agreements.

Honourable Speaker, Deputy Speakers, and Members of the Regional Representatives Council,
Another area of main focus of the government in regional development is the handling of conflict areas. The national crisis and Reform on a large scale and rapidly-occurring have caused social conflicts and violence to occur in several regions, both of horizontal as well as vertical in nature. The numerous impacts of the conflicts are the decrease of the standard of living of the society, the disruption of economic activities, the segregation of the society based on various categories, the phsychological trauma to children and women, the damage to public infrastructure, the weakening of functions of governmental institutions, and the decrease of service to the society. Those conflict also stongly affect the results of the development that have been achieved, disturb the process of transition and consolidation of democracy, weaken the spirit of development decentralization, and worsen the perception of the international community on the condition of Indonesian security as a destination of investment and business.

With regard to the handling of conflicts of horizontal nature, our attention has been poured to the regions experiencing bloody horizontal conflicts in North Moluccas, Moluccas, West Kalimantan, Central Kalimantan, and Central Sulawesi. Generally speaking, it is understandable that the main interest of the regional development policy in handling conflict areas is related to the effort to realize public order and sustained peace proportional to the local wisdom and the aspirations that develop in the communities of those regions.

Vertical conflicts, notably in Nanggroe Aceh Darussalam and Papua, essentially occur due to the perception of injustice in development that is felt by the society. This factor eventually triggered the radical aspirations of separatist movements, such as carried out by the Free Aceh Movement (GAM) and the Free Papua Organization (OPM). The Laws on Special Autonomy have provided more freedom of movement to those two regions to manage their governance in a special way, in accordance with the local aspirations and culture.

The Government has always emphasized peace talks with the GAM. By the grace of God, with the signing of the peace agreement on 15 August 2005, the conflict that has lasted for 29 years, God Willing, could be brought to a close in a peaceful, just, and dignified manner. I invite all layers of the society to collectively maintain the continuity of a permanent peace in Aceh. We should not disregard the enthusiasm of our people in Aceh in welcoming the signing of the Memorandum of Understanding with the GAM in Helsinki last 15 August, which has provided a great hope for the restoration of peace in that region.

Learning from the experience in handling vertical conflicts, henceforth, the development efforts for conflict regions shall pay attention to three main aspects. First, the settlement of conflicts necessitate various approaches, from those of micro in nature to those of macro, by continuing to pay attention to the aspirations of the society. Second, conflict settlement necessitates an understanding of the pre-, during, and post-conflict situations to effectively empower the society. Third, conflict settlement requires the active participation of the people that are involved to accelerate finding the source of the problem, accelerate the recovery, and the continuity of peace maintenance.

Honourable Speaker, Deputy Speakers, and Members of the Regional Representatives Council,
I, thus, conclude my explanation on the policy of handling conflict areas. I would now like to elaborate on the last part of the territorial dimension, namely on the urban areas. In the last decades, urban areas have grown very rapidly. In the last ten years, the proportion of inhabitants living in urban areas increased from 35.9 percent in 1995 to 48.3 percent in 2005. At the present, the number of urban inhabitants has now nearly equalled that of rural inhabitants. Even though, on the one hand, the increase in urbanization is a reflection of the presence of economic progress, yet, on the other hand, it brings a complicated problem since the urbanization process is more due to the limited work opportunities in the rural areas. This urbanization occurs not in an equitabe manner, thereby resulting in concentrations in certain metropolitan cities and big cities, particularly in the Island of Java, in parallel with the concentration of the manufacturing industry. The concentration of inhabitants in the manufacturing industry has brought about consequences of various social problems. The metropolitan cities and big cities are under pressure to provide housing and settlement infrastructures, to accommodate the low income inhabitants. This condition also triggers the profusion of slum areas that tend to continue on the rise each year.

The physical development of the cities that continue to spread out and integrate the smaller cities surrounding them also bring about transportation problems. In the meantime, the impact caused by the concentration of growth in big and metropolitan cities is the weakening of interrelatedness of interregional activities, the increase of interregional disparity, the reduction of interrelatedness of activities between the urban and rural areas. The extension of cities also results in the increase of the conversion of productive agricultural land into settlement, trade, and industrial areas.

Going forward, the Government will formulate seven policies for the development of urban areas as follow. First, encourage the acceleration of the development of medium and small cities, particularly outside of Java, so that they can play their roles as the driving force of development in their areas of influence. Second, encourage the increase of interrelatedness of economic activities in urban areas with economic activities in rural areas in a synergic manner. Third, increase the interrelatedness of intercity development. Fourth, manage the growth of big and metropolitan citites by adhering to the principle of sustainable development. Fifth, manage the rate of migration from the villages to the cities by encouraging the growth of non-agricultural economic activities in the rural areas. Sixth, increase the capacity of the regencial/municipal governments in relation to public services, management of the city environment, development of partnership with the private sector, and particularly the increase of the fiscal capacity. Seventh, increase of cooperation between the regencial/municipal governments, specifically in building the infrastructures and means. All of these require the existence of integration and certain economic scale in the management of natural resources and the environment.

An aspect closely related to the effort of regional development is the land aspect. The realization of a land system that is just and able to provide as much prosperity as possible to the people is utterly important in realizing the priorities of the national development in each region. In line with my vision and mission in the framework of regional development, the land aspect is highly relevant in supporting the priority of revitalizing agriculture and rural areas, construction of housing for the people, and building the socio-economic infrastructure.

Another aspect in regional development relates to the development of regional energy that has yet to be tapped. Particularly renewable energies, such as biomass, geothermal, solar energy, hydro energy, wind energy, and sea energy. The priority and attention to explore these potentials become more relevant and strategic mindful of the tendency of soaring fuel prices, and our surging energy demands. The main obstracle to the use of these new energies is because those energies are not yet competitive compared to conventional energies. This is also due to the fact that we are yet to master the appropriate technology for their development and the unavailability of pricing policy that would encourage their utilization. In order to realize a sustainable system of supply and energy use, measures could be taken by combining the concept of optimizing the use of renewable energies that are readily available in various regions, the use of energy-efficient technology, and socializing the pattern of living that is energy-efficient. I invite all the regional heads to pay serious attention to this issue and, at the same time, utilize the available potentials, in overcoming the energy issue in our country.

Honourable Speaker, Deputy Speakers, and Members of the Regional Representatives Council,
Allow me, now, to present the various policies relating to the balancing fund in the year 2006 and the strategy forward to increase the capacity of regional finances.
First, the policy on Revenue Sharing Fund (DBH) in the fiscal year of 2006 is intended to accelerate the determination of allocating the DBH through the enhancement of coordination and data accuracy. The determination of allocating the DBH refers to the Law on Fiscal Decentralization and the Law on State Finance. Meanwhile, in the context of the Special Autonomy, the DBH from crude oil and natural gas mining in the Province of Nanggroe Aceh Darussalam is granted until the eigth year and in the Province of Papua until the twenty fifth year amounting to seventy percent, since the entry into force of those two laws.

In perfecting the process and mechanism of channeling the Revenue Sharing Fund to the Regions, the Government takes active measures by increasing the coordination between the related departments and agencies in order to accelerate the determination and channeling of the revenue sharing fund to the regions, so that it could be carried out timely. With the increase of the world crude oil price, the realization of allocating the Revenue Sharing Fund for several oil and gas producing regions have increased significantly. For that reason, I hope the oil and gas producing regions could mutually bear the burden of the increase in subsidy budget for the non-oil and gas producing regions. We should seek together a formula that would not violate the principle of justice, equity, and unity as a state in perfecting the allocation of the Revenue Sharing Fund.

Second, the policy of allocating the General Allocation Fund (DAU) is intended to equally distribute the financial capability among the regions with the purpose of financing the needs of the regions in the framework of carrying out the decentralization, which utilization is determined in accordance with the priorities and needs of the respective region. The ratio of the balancing fund for the DAU in the 2006 Bill on the State Budget (RAPBN) amounts to 26 percent of the net domestic revenue, an increase from the 2005 State Budget that amounted to 25,5 percent. The DAU allocation for the fiscal year of 2006 for each region is set not smaller than in the fiscal year of 2005. In the event that, in 2006, there should be a province that receives a DAU smaller than in 2005, the said province shall be accorded an adjustment fund, which amount shall be adjusted to the capability of the state finances. This policy shall only be in place in the transition period. In 2008, the DAU will be utilized as an instrument for interregional fiscal balancing. Those regions that are able to explore their regional financial potentials and receive part of the revenue sharing of the natural resources and taxes shall receive a smaller DAU allocation. In the meantime, those regions that have little natural resources shall receive a larger DAU allocation. Therefore, the amount of DAU allocation could increase or decrease, and is inversely proportional to the regional fiscal capability and fiscal needs of each region. I hope that the honourable Council could understand and, at the same time, together with the Government socialize it to their respective region of representation.

Third, the policy of Special Allocation Fund (DAK) is intended to assist those regions which financial capability are below the national average, in order to finance the provision of physical means and infrastructure for basic services that fall under the domain of the regions. Included in this policy is the purpose of supporting the acceleration of building the means and infrastructure of the coastal and islands areas, the border areas with other countries, least developed/remote areas, and food buffer zones. For the year 2006, the Government shall begin reallocating part of the Deconcentration Fund utilized for financing local activities that have actually been decentralized, through the DAK allocation.

Honourable Speaker, Deputy Speakers, and Members of the DPD,
Ladies and Gentlemen,

The Government is aware that in order to support the development in its regions, the Regional Governments should better not solely rely on the balancing fund originating from the State Budget. The potentials of the Regional Original Revenues (PAD) that are untapped are relatively still significant. The Government shall widen the bases of regional taxes and levies, however the regions shall not be allowed to submit a proposal outside of the provisions that have been enacted by laws. The evaluation of problematic regional regulations, with regard to taxes and regional levies, demonstrates that many aspects still need to correctred and perfected, when seen from the angle of the prevailing rules and regulations. There are also some regional regulations that have the potential to hinder the progress of the business world and has the potential to cause public unrest. The Government is also still encountering the existence of regional regulations that have not been adopted by the Provincial House of Representatives (DPRD) and yet are already implemented. To the Members of the DPD, I look forward to their cooperation in providing comprehension to the regions that levies outside of the provisions of the Laws will, in fact, result in additional burden, which will in turn hinder the development of the regional economy.

In the context of financing the regional development, the Government is also drawing up a regulation on regional loans. It is important for me to emphasize that for reasons of macroeconomic prudence and stabilization, for the time being, the regions are not yet allowed to borrow directly abroad, until the regulations required to govern that issue have been completed. The Government has at its disposal a mechanism for channeling loans and grants to the regions that is regulated by a Decree of the Minister of Finance. However, the Government provides the opportunity to the regions to establish mutually beneficial relations with other regions and with neighbouring countries to improve their economies. As regards to domestic loans, be it for other regions, the banking sector, as well as the issuance of bonds, the regulations are still being drawn up.

In these forthcoming months, the Government will announce cumulatively the loan allocation that have been approved by the regions. We must still give priority to the factor of prudence in determining the amount of loans, bearing in mind the burden of the government debt that is already quite heavy. To the regions that will take advantage of the loans, I urge them to abide by the prevailing regulations, and do so only when it is really necessary, and possess the capability to repay them. The utilization of loans should only be for productive activities and that have a relatively low level of risk.

Hounourable Speakers, Members of the DPD, and Ladies and Gentlemen,
With these words conclude my explanation on the progress and future direction of various Governmental Policies on Regional Development. We may all agree that for the success of implementing the Regional Decentralization and Autonomy, a high spirit of service and professionalism would be required from all of us in carrying out the duties of service in their appropriate fields.

Finally, by offering our praise of gratitude to Allah SWT, let us beg for His guidance and counsel so that we are always bestowed with the physical and moral capability and strength to bear the mandate of the people to carry out the duties and service to the nation and state.
Thank you.

Wassalamu’alaikum Warahmatullahi Wabarakatuh.

Jakarta, 23 August 2005

PRESIDENT OF THE REPUBLIC OF INDONESIA,

Sgd.

DR. H. SUSILO BAMBANG YUDHOYONO