Towards Sustainable Health Care Development in Indonesia
Taufik Hanafi


I. Background

Demographically, Indonesia is the fourth most populous country after China, India, and the US. The national survey conducted by the Central Bureau of Statistics (CBS) showed that the total of the nation's population in 1990 was 179.3 million people, with the average annual population growth of 1.9 % during 1980-1990. Geographically, Indonesia is the largest archipelago country in the world, with total area of 1,919,317 square kilometers. It consists of five major islands namely Sumatra, Java, Kalimantan, Sulawesi, and Irian Jaya, and thousands of small islands. According to the Indonesian Naval Hydro-Oceanographic Office, the number of islands, including rocks, reefs, and sandbanks, is 17,508 (see Figure 1).

Interventions to improve health status are an important policy instrument in the nation’s overall strategy in alleviating poverty and improving the welfare of the Indonesia’s population. As in many developing countries governments intrude into many markets, but seldom as commonly or extensively as in health care. Public health policy is sustainable if it promotes increased welfare through better health status, greater equity, more consumer satisfaction, greater community participation, and lower total cost than would occur in the absence of government intervention.

Decentralization of public services has been popular strategies in Eastern Europe countries and developing countries including Indonesia for remedying the problems of governance. Highly centralized government has long been recognized as the greatest political obstacles to economic development in developing countries (Nicholls, 1989). Decentralization is advocated as a means to promote efficiency and responsiveness of the government programs and to strengthen community participation. Sixty-three of the 75 transitional and developing countries with population greater than 5 millions have transferred or in the process of transferring authority from central to local governments (Dillinger 1994). In Indonesia discussion about decentralization have focused on ways to improve the sustainability, equity, and access of public services including education and health care.

This paper attempts to assess the extent of decentralization efforts in Indonesia and its impacts on sustainability of health care services at local levels. After a brief discussion on concepts of decentralization and sustainability and indicators used to measure the extent of decentralization efforts and program sustainability; the discussion turns to the existing condition of decentralization policies in Indonesia. Pattern of regional development and sustainability of health services as implications of the decentralization initiatives will be presented.

II. Decentralization and Sustainability: An Overview


The term of decentralization is a subject with many dimensions and commonly associated with various interpretations and contexts for instance administrative, economic, and political decentralization in both developed and developing countries (Wolman, 1990 and Smith, 1980).

Decentralization has been described broadly as "the transfer of responsibility for planning, management, and the raising and allocation of resources from the central government and its agencies to field units of government agencies, subordinate units or level of government, semi-autonomous public authorities, or non-governmental private or voluntary or organization (Rondinelli, 1989). Bennet (1990) expressed decentralization in the two dimensions namely, the purely on governmental reform--to transfer responsibilities downwards from national level to local governments; and the mixture of governmental reform--to transfer responsibilities between the governmental and non-governmental sectors for increasing decentralization to market forces. The various interpretations of decentralization are basically manifestation of different perception of decentralization. The various perceptions of decentralization have something in common i.e., to shift authority with respect to planning, decisions making, and managing of public functions from the central level to individual, organization or agency at sub-national level (Conyers, 1985).


The wide perception of decentralization contributes to the variety of different goals of decentralization. De Toqueville's perception of decentralization, classified as the classical democratic concept of decentralization, has been expressed by Hoffmann (1959) as:

The creation of self-governing units will release the spontaneity of the citizens, for liberty is power to build and not merely a capacity to resist. It will also preserve the dignity of the individual who will remain the master of his fate, whereas mere participation in an excessively abstract and instant general will would mean abdication. It will preserve the dignity of government, whose power, based on a "free consensus of wills" will be legitimate and respected. Not only will it perform the political function of preventing the tyranny of the general will, but it will have the social task of stopping that alienation of human beings from one another, that destruction of personal links which modern society brings with it - the task of "bringing men back together" (Lundquist, 1972, pp.67-68). Wolman (1990, pp.30-41) suggests that decentralization policies can be used as the means to achieve several objectives for instance, to increase efficiency through the maximization of social welfare; to improve the responsiveness and accountability of policy makers to the citizen; to promote diversity in public policies; to improve political participation of the citizen; to strengthening a national unity; to improve territorial equity through national grant equalization systems to support the local government which have relatively low regional income or high need; and to improve the allocation system. In addition, a study done by Wolman and Teitelbaum (1985) state that decentralization will minimize accessibility of the interest of many groups to the allocation system, with the conclusion : A continued decentralization of policy making to the states does imply a different set of winners and losers. At least in the short run, many groups that are influential and effective at the federal level-particularly in the human area-would be at disadvantage at the state level because the are not at present effectively organized there. Overall a widespread decentralization would imply that certain interests-the poor and labor, especially-would be disadvantaged relatively to other interests in low income states and in states with a higher percentage of poor people or minorities (Wolman, 1990, pp.37-38). On the other hand, the implementation of decentralization is often a critical stage because it can produce some disadvantages for instance, inefficiencies and diseconomies in either developed or developing states, and capitalist or socialist economies (Smith, 1980). Conyers, Diana (1985, p.39) confirmed that the role of decentralization in development has many dilemmas, with quoting of Larmour's expression on the role of decentralization as follows : Many of the arguments for, and against, decentralization are as Herbert Simon pointed out ' like proverb..... for almost every simple one can find an equally plausible and acceptable contradictory principle' ..... Decentralization promotes efficiency and reduces it. Decentralization enhances national unity and inhibits it. And so on. Based on organizational arrangements, Rondinelli (1981) identified several forms of decentralization. He made a clear distinction between functional and areal decentralization. The former is associated with the transfer of authority to perform particular public services to specialized organizations that operate nationally, such as establishing local offices within ministries dealing with provision of health care and highway construction. On the other hand, areal decentralization focuses on the transfer of responsibility for public services to institutions that may legally function within well-defined geographical or political boundaries such as province, district, sub-district, and village. Another distinction can be made among four different categories of decentralization: deconcentration, delegation, devolution, and privatization.

Deconcentration, which is considered as the weakest form of decentralization, can be defined as a transfer of decision-making authority for providing public services and infrastructure to local administrative offices of the central government. Delegation can be described as the transfer of responsibilities for specific functions to organization that are not fully controlled by the central government ministries, which is often recognized as parastatal organizations. Devolution, which is the most extensive form of decentralization, involves the transfer of power to subnational political entities. This form of decentralization has certain features. First, subnational units have a clear status and legally recognized geographical boundaries. Second, local units have a number of functions to perform. Third, local units have the power to raise sufficient resources and make expenditures. Finally, local units given autonomy and independence can be clearly perceived as separate level over which central government authorities have limited and indirect control. Privatization involves the transfer of power or responsibilities to private entities.

Measuring Decentralization

Diversity of the perceptions and the dimensions of decentralization mentioned above needs general indicators as a framework for evaluating and comparing consistently the progress of implementation of decentralization either in a particular country or state over particular period of time; or between a particular country or state with other countries or states.

Smith (1980,p.137) suggests decentralization as a variable and it needs a procedure to measure it. He also proposed ten measures which can be used to determine degree of implementation of any individual decentralization system namely, (1) relating to governmental tasks delegated to area governments in which the more governmental tasks are delegated to area governments the more decentralized the system will be; (2) proportion of total area government income which is contributed locally; (3) the level of decentralization within the field offices of central government such as the form of inter-departmental coordination used, the dependence of local officers on the central offices in making decision, and the responsibilities delegated to field officers to handle governmental functions; (4) the amount of delegations which are transferred to area political authorities; (5) legal means used in transferring of the authority to area governments; (6) proportion of total local expenditure to total public spending; (7) the kind of structure of organization, a simple tier structure of unitary authorities or multi-tiered structure, used in the system of decentralization in which the simpler a structure used will be the more decentralized than a complex structure; (8) proportion of local government revenues to total government revenues; (9) proportion of the employees of local governments to the employees of central government as the local public servants; and (10) the larger authorities are transferred to local governments, the more decentralized the system is (Smith,1980,p.138-141).

In addition, Conyers, Diana (1985, p.23-24) expressed that there are five main indicators which we can use to identify individual systems of decentralization namely, (1). the governmental functions which are transferred from central government to sub-national level; (2). the kind of delegation, authority, and powers which are transferred in relation to each governmental function; (3). the level(s) or area(s) which obtains the delegation, authority or power; (4). the individual, organization or agency at each level which obtain the authority; and (5). the legal means used to transfer the authority.

In political science point of view, Wolman (1990, pp.37-41) defined four operational measures as a comparative setting for exploring the effect of differing degrees of decentralization i.e.: (1) main governmental functions handled by subnational governments; (2) the legal means used to transfer the autonomy from central government to subnational governments; (3) the degree of dependence of subnational governments finance on the central government.

Implementation of decentralization can take a variety forms. Countries may simultaneously use different types of decentralization for different functions. For example, some government functions may be devolved to subnational government, while others are deconcentrated to local offices of the central ministries. Mills et al (1990) identified nine government functions in health system that may be decentralized: (1) legislative--making laws on health issues, (2) revenue-raisin--determining and implementing the mechanisms for mobilizing resources to finance the health services, (3) policy-making—determining the broad and detailed policies to achieve goals of the health development, (4) regulation—indirectly controlling the operation of non-governmental health providers by administrative regulations such as licensing, (5) planning and resource allocation—formulating short and long term planning, and setting priorities of health sector development, (6) management—making operational decisions for providing health care services including personnel, budgeting, procurement, and maintenance, (7) intersectoral collaboration—establishing cooperation and network with other sectors or organizations, (8) interagency coordination—coordinating the policies and operations of various health agencies and providers, and (9) training—planning and executing training activities. The extent to which the nine functions may be decentralized in any particular form of decentralized system is presented in Table 1.



Definition of program sustainability may vary for each discipline, but program sustainability generally described as the capacity of a program to continue to deliver its intended benefits over an extended period of time. The Operations Evaluation Department of the World Bank describes sustainability as follows (Valadez and Bamberger, 1994).

"The term of "sustainability" describes the ability of a project to maintain an acceptable level of benefit flows through its economic life. While this may often be expressed in quantitative terms involving the internal economic or financial rates of return, benefits may also be qualitatively assessed. For projects in the productive sectors such as industry, the principal measure of performance is output, generally expressed in terms of capacity utilization, but Bank-supported projects normally have another objectives such as sub-sectoral policies, technology transfer and institution building, which must be assessed qualitatively". The issue of sustainability has been a great interest of donor countries and agencies. The term of sustainability was narrowly defined as the continuation of donor-assisted programs after international funding and technical assistance discontinued. Prince et al (1996) provide a greater operational meaning of the concept by developing the three-tier model which views the sustainability as a long term, dynamic process of development, and devoting efforts to basic problems of human welfare. According to the model, sustainability is seen as a form of organic evolution involving three levels of program management. The first level (Tier 1) refers to the ability to continue the original project activities. The second level (Tier 2) relates to the ability to adapt, modify, and enlarge the original program. This phase is characterized by an evolution from the dependence on external sources for professional management and financing to greater managerial, technical and financial self-sufficiency. The third level (Tier 3) is indicated by a high degree of professionalism in maintaining clarity and continuity in the national objectives being addressed and capability of integrating the project activities with other related programs.

The difference between host government and donor perspectives of sustainability is suggested by the Director of the External Aid Coordinating Committee in the Ghanaian Ministry of Health as cited in La Fond (1995):

Sustainability is important principle to both the Government of Ghana and the donors but it probably does not mean the same thing to both. Usually donors define sustainability to mean being able, after a period, to withdraw completely and have the system remain operational. We must remember that Ghana is not a rich country and that for a while yet we are going to need significant external support. With this proviso, we have no alternative but to consider sustainability in terms of organizational development and systematic growth, confidence building and improved efficiency in the use of resources. Sustainability involves a multidimensional concept that can not be measured by a single indicator. Valadeze and Bamberger (1994) proposed four main indicators for measuring sustainability of social development programs: (1) continued delivery of services, (2) maintenance of physical infrastructure, (3) long-term institutional capacity, and (4) support from key stakeholders (see Table 2).

Other indicators to measure the degree of sustainability developed by Honadle and Van Sant cited in Prince et al (1996) include three main components, namely (1) the proportion of program-intimated goods and services that are still delivered produced and maintained five years past the termination of external assistance, (2) the continuation of local participation stimulated by the program, and (3) the expansion of the services and efforts as a results of program-built local capacity. Another approach to measuring the degree of sustainability for donor-assisted project concerning health manpower training and development cited by Prince et al involve three characteristics : self-financing, the continuation of providing streams of benefits, and able to survive over time. As one of the basic requirements of sustainability, to be able to function effectively over time, a health care system needs to have two important features: (1) the ability to secure sufficient resources locally, and (2) the ability to deploy resources effectively and efficiently to meet health needs (Fond, 1995).


III. Implementation of Decentralization: An Overview The Indonesian independence from the Dutch was proclaimed by Ir. Soekarno and Dr. Mohammad Hatta on August 17, 1945. The highest political institution in Indonesian Government Structure is People’s Consultative Assembly or Majelis Permusyawaratan Rakyat (MPR). The two important functions of the Assembly include electing the President and establishing the Guidelines of State Policy or Garis-Garis Besar Haluan Negara (GBHN) for implementation by the President. The legislative and budgetary powers are vested with the House Representatives or Dewan Perwakilan Rakyat (DPR). Members of the national and regional DPR are elected based upon proportional representation. The structure of Indonesian Government is presented in Figure 2.

A number of initiatives have been made at various times in Indonesia’s post-independence history to establish representative decentralized units and to strengthen the level of local autonomy. Establishing the unity of the country—ethnically diverse and geographically dispersed collection of more than 13,000 islands integrated over a long period of time—has been a major concern of national leaders, and this might tend to make Indonesia’s leaders suspicious of real decentralization (Smoke and Lewis, 1996).

The spirit of decentralization in Indonesia has been initiated since its independence of 1945 in which its Constitution implied in Article 18 that respect would be paid to regional autonomy. An important political initiative of the Government of Indonesia in promoting the decentralization was reached in 1974, when Law No.5, titled "The Republic of Indonesia: Elucidation of Basic Principles of Administration in the Regions" was established. The law outlines the main principles for the development of regional autonomy and provides legal basis for regional administration including for broad involvement of subnational units in provision of public services. Sujatmo (1991, pp.15-19) interpreted that the law 5 of 1974 was the most consistent and appropriate law with the Constitution in Article 18 among the available laws on regional autonomy, because the law was established with the spirit to return constitutional life by upholding the 1945 Constitution in a strict and consistent manner and by respecting Pancasila--the five inseparable and interrelated principles--as a state philosophy and ideology. The aim of the law of 1974 was intended not only for the democratic functioning of government, but also for increasing efficiency and effectivity in implementing development, conducting government, and delivering public services in the regions (Dorojatun, 1981 pp.146-147).

The Indonesian law recognizes two basic principle for the delivery of public services at the regional level, namely deconcentration and decentralization. The deconcentration refers to provision of public services by regional branches of the central government departments. The decentralization refers to provision autonomous subnational levels of government. Under the first principle the administrative levels consists of 27 provinces or Wilayah Tingkat I, 297 districts or Wilayah Tingkat II, 3,837 sub-district levels (Kecamatan), and 5,000 urban villages (Kelurahan). According to the second principle subnational government can be categorized into three levels of autonomous regions or Daerah Otononom including 27 Daerah Tingkat I (abbreviated to Dati I) which cover areas similar to those of their corresponding provinces, about 300 Daerah Tingkat II which cover areas identical to those of their corresponding districts, and about 62,000 villages (rural villages).

The transfer of power has been implemented by various statues and government regulations which stipulate the following 19 functions for local governments: (1) small holder agriculture, (2) animal husbandry, (3) inland fishery, (4) small scale rubber plantations, (5) larger plantations, (6) sea fisheries, (7) forestry, (8) education and culture, (9) public health, (10) local public works, (11) small scale industry, (12) small scale mining and quarrying, (13) housing, (14) traffic management/transportation, (15) general administration, (16) labor welfare, (17) social welfare, (18) tourism, and (19) local enterprise projects. Implementation of the regulations has been slow, and the central government involvement in local functions is still dominant.

Decentralization of Development Planning

The role of central government in Indonesia is dominant in planning and budgeting decisions. The planning approach adopted by the Soeharto administration could be characterized as technocratic and highly centralized. Although there were development planning initiatives in the pre-Soeharto administration period, the present system of five year development plan took place in 1969 with the introduction of the Five Year Development Plan (Repelita) for the period 1969/70-1973/74. Since then, the plans have been implemented consistently and issued at regular five year intervals. The plans are essentially comprehensive and indicative, in which cover macro, regional, and sectoral policies. The National Development Planning Agency, under the Ministry of National Development Planning, is directly responsible to the President of Indonesia in planning and budgeting for the development programs. The historical perspective of the national development planning policies in the country is presented in Figure 3.

Repelita is incorporated into the annual budget, better known as the State Budget or Anggaran Pembangunan dan Belanja Negara (APBN), which is formulated each year and approved by the People's Representative Assembly. This formulation of the State Budget represents short-term planning which is operational in nature, and subsequently implemented by other technical ministries and government institutions. Since 1968, Indonesia have adopted ‘balanced’ budget policy. The planned expenditures have been paid with combination of taxes and external borrowing. The New Order Government administration has been successfully increasing real development resources over the years.

In order to promote the adjusted development strategy from the growth oriented-development strategy to the equity oriented-strategy, the central government paid more attention on the regional development aspects i.e.: to strengthen local planning capabilities and increase people's participation in development. In this regard, the central government established the Local Development Planning Agency (Bappeda Dati I) at province level in 1976 and the Local Development Planning Agency (Bappeda Dati II) at district level in 1981. The Local governments, at district and provincial level, have authority to choose and establish the local development planning agency personnel. Through establishment of both planning agencies and supported by human resources development program for local personnel, it was expected to improve mechanism and coordination of planning at region levels. In addition, a development coordination mechanism from sub-district level to national level was established to synchronize and integrate the regional and sectoral development efforts (see Figure 2).


Under this hierarchical planning mechanism, the local governments at subdistrict, district, and provincial level have authority to formulate their local development planning and budgeting with respect to local issues and priorities, and considering the Guidelines for State Policy and the Five-Year Development Plan. The local development plan formulated and discussed hierarchically and inter-departmentally from sub-district level to provincial level, then, will be discussed and coordinated at national level. In this national development planning coordination at the capital city, the local governments supported by their Local Development Planning Agency (Bappeda Dati I and Dati II) has chance to present their local issues, development programs, and development policies to the central government. In this meeting, coordination and synchronization between regional and sectoral development, and regional and national development is also discussed intensively.

Fiscal Decentralization

Fiscal decentralization refers to a condition where regional and local government are given greater authority to mobilizing revenues and determining resource allocation. Fiscal relations between different levels of government in Indonesia, as in many developing countries, can be characterized as heavily centralized in which local government’s fiscal largely relies on the central transfer. Regional government revenue comes from a wide range of sources, however, as in many developing countries much of the revenue originates from the central government transfer. The regional government sources include (1) subnational government own revenues (tax and non-tax), (2) assigned revenues (tax and non-tax share), and (3) subsidies, contribution and development grant from central.

In the early 1970s the Government of Indonesia initiated a broader grant program chartered by the Presidential Instruction (INPRES) intended for social and economic development expenditure. The primary goals of the program include assisting the attainment of the main national development objectives, improving the equity, and strengthening local autonomy. Since the establishment of the INPRES program, the central transfer to local authorities occurs in the two forms: general purpose and specific central transfer. The general purpose transfer funds are distributed to all levels of government ranging from provincial level to village level and can be allocated for local project development chosen within the local boundaries with subject to general guidelines from the central government. This grant program is primarily intended to promote local autonomy and improve local infrastructure. The block grant is mainly devoted to general Inpres programs including Provincial Development Grant (Inpres Dati I), District Development Grant (Inpres Dati II), Village Development Grant (Inpres Desa Tertinggal), and Less-Developed Village Grant (Inpres Desa tertinggal).

The specific purpose central transfer refers to specific block grant, which includes specific Inpres and subsidy for autonomous regions. Specific Inpres funds are specific block grant which is earmarked by the central government for specific uses such as public health, education, reforestation/conservation, and provincial and local road improvement. The specific block grant is created primarily to accelerate the achievement of national development targets such as health status and universal primary education. Subsidy for autonomous regions is designed to create fiscal balance in autonomous regions. It finances recurrent costs such as staff expenditures for provincial and local governments to enable them to balance their budget. From fiscal decentralization perspective, the general block grant has higher degree of local autonomy than the specific purpose central transfer, because the former provides more flexibility for local authority in spending the funds. The establishment of general block grant transfer and its expansion overtime has constituted the main government initiative at decentralization.

IV. Decentralization of Health Services Rationale

There are several main factors underlying the Government of Indonesia's efforts to make local governments shoulder greater responsibilities in the provision of health services. The rationales of the decentralization initiatives include economic transition, demographic transition, epidemiological transition, efficiency factor and political consideration.

Economic Transition

Indonesia has experienced rapid economic growth and a changing economic structure in the last three decades. In 1967 Indonesia was one of the poorest country in the world with a per capita income of US$50, about half that of India, Bangladesh, and Nigeria. Since then, it has made great performance, achieving an annual average real GDP growth at 7 percent annually during 1966-1995, implying higher than that of the world growth rate and high income countries. The continued economic growth has increased the nation's per capita income from US$ 50 in 1967 to US$950 in 1995. Table 3 presents international perspective on the trends of the macroeconomic indicators including growth rate of real GDP and real GDP per capita during 1966-1995.


The auspicious economic growth was initially energized by import-substitution and oil-based industries, which gradually promoted an export-oriented manufacturing industries. A series of deregulation on fiscal, trade and investment procedures was introduced to accelerate the flow of foreign investments and to increase the private sector participation in economic sector and provision of infrastructure. Supported with prudent macroeconomic management, which has been hallmark of the government policies, the inflation rate has been maintained below two digits.

Indonesia's reliance on industrialized for continued rapid growth has resulted in changes in the structure of production. The economic transition was indicated by declining contribution of agriculture sector to the national economy from about 30 percent in 1975 to 17% in 1994; while, the role of industrial sector particularly manufacturing industries and service industries increased over the period of time (see Figure 4).


Sustained rapid economic growth has allowed living standard to improve significantly as reflected by a substantial reduction in poverty rate. According to the World Bank's estimates, at the beginning of the 1970s' 60% of the population or about 70 million Indonesians were living in poverty . Based on the national survey conducted by CBS, the results indicated that the percentage of the population below the poverty line declined from 40% (38.8% urban and 40.4% rural) in 1976 to 15.1% (16.8% urban and 14.3% rural) in 1990, implying an absolute decline in the number of poor people from about 54.2 million people in 1976 to 27.2 million people in 1990 2. The private incidence continued declining to 13.7 percent or about 26 million in 1993 (see Figure 5). The improvement in the economic indicators and the distribution of wealth has important implications to the demand of health care and participation of private sector in the provision of health care.


Demographic Transition

Demographic change in Indonesia indicates a similar pattern to that of the developed countries. The transitions include a significant decline in fertility rate, crude death rate and the rapid growth of urban population which have importance implications for the provision of types of health care and distribution of health services.

Following to the successful in economic performance, Indonesia also has impressive records in family planning. Since the late 1960s when the Government of Indonesia launched family planning program intended to slow the rate of population growth, the prevalence of contraceptive use among married couples increased significantly from only about 10 percent in 1960 to more than 45 percent in the late 1980s. Combined with raising income, the expansion of health care services, the achievement of universal primary education, an increase in the average age of married contributed to a significant decline in crude death rate and fertility rate (see Figure 6). As result, the overall population growth fell from 2.4 percent per annum in the late 1970s to 1.8 per cent in the late 1980s, to 1.6 percent at present (see Figure 7). In addition, the outstanding records in reducing IMR and increasing life expectancy have important influence in age structure and dependency ratio. The demographic transition can be seen in the changes of age structure by the increasing proportion of aging population and working group and the declining proportion of population ages 0-14 year during the 1971-1995 period (see Figure 8).




The structural change in economy and growing opportunities for employment in the industrial and services sectors in urban centers affects population distribution between rural and urban areas. Proportion of rural population declined from about 85 percent in 1961 to 65 percent in 1994; while, urban population increased from only 15 percent to 35 percent over the same period (see Figure 9). The urban transition is occurring more rapidly in Java, accounting to only about 7 percent of the land area with about 60 percent of the total population, which is already 36 percent urban and could exceed 60 percent by the year 2020.


Epidemiological Transition

Epidemiological transition refers to changes in configuration of causes of death and source of morbidity. Many developed countries have experienced successful epidemiological transition as characterized with declining infectious diseases occurring mainly in the younger groups and emerging degenerative disease in older group (Drake, 1993). Unlike developed countries, Indonesia, as many developing countries, has experienced 'double burden', in which acute infectious diseases such as diarrhea, tuberculosis, respiratory infections, and tetanus remain a serious problems; while, there is a significant increase in chronic degenerative disease such as cardiovascular diseases which become an important cause of death.

Indonesia’s health sector performance has been impressive over the past three decades. The infant mortality rate (IMR) declined sharply from about 142 per 1,000 live births in 1971 to 55 in 1995. Similarly, life expectancy both for Indonesian males and females improved from 45 and 48 years in 1971 to 61.5 and 65.3 years, respectively (see Figure 10). The outstanding records in reducing IMR and increasing life expectancy have important influence in the age structure and dependency ratio during the same period.

The health sector performance was associated with the significant expansion in coverage with government-financed primary health programs and community health services, which took place during the oil boom period of the 1970s and the early 1980s. In 1971, Indonesia’s crude petroleum sold for an average price of $ 1.70 per barrel. By July 1, 1974 the price increased to $ 12.60. This growth, augmented by expansion in production, resulted in the nation’s oil export rising from $ 834 million in 1972 to $ 4.7 billion in 1974 (Woo, 1994).


Political and Economic Considerations

Growing awareness of the weaknesses of the centralized structure has been one of main justifications for the Government of Indonesia focusing more attention on promoting greater degree of local autonomy in provision of public services. From political perspective, a tremendous variation of the 27 provinces of the country in natural and human resource endowments, in religious, cultural and ethnic is the most critical factor of the national political stability. The promotion of decentralization policies could ensure widespread regional and local participation in the national development which provide, in turn, political glue to maintain the national unity.

From economic perspective, Oates (1971) provides an eloquent argument on the weakness of the centralized structure in providing public services. He suggests that a-one-size-fits-all approach commonly adopted by the centralized planning system leads to the government to provide a bundle of public goods different from the preference of citizens of particular regions, provinces, or districts. The preferences vary geographically, the uniform policy is likely to force some localities to consume more or less than they would prefer to consume. Decentralization contributes to more efficient provision of local public services by allowing a better matching of expenditures with local priorities and preferences.

Combined with the political and economic considerations, the family of transitions--the economic, demographic and epidemiological transitions-- facing the nation have created a greater demand for better equity and quality of health services. With the government’s contribution of only about 2.5 percent of the total budget for health sector, the demand of health care has exceeded the government’s ability to provide the necessary subsidies. Promoting decentralization and strengthening community participation including private sector in provision of health services becomes an important policy agenda in response to the financial constraints, and the equity and the quality of health care services in Indonesia. Decentralization of health care sector in Indonesia dictates that regional and local government set their own health service priorities within overall national guidelines and targets. The subnational governments estimate the financial and human resources required, prepare and defend their proposals with central government ministries, supervise and monitor the health service activities. The purpose of this section is to provide an overview on the implementation of decentralization of health care in the country with focusing on planning and financing issues.

Health Development Planning

The general policies to achieve the main objectives of the health care sector include improvement of even distribution and quality of health services, and improvement of people's health and nutritional status. The enhancement of distribution and quality of health services emphasize primary health services, implemented through community health centers and sub-centers, village midwives, and other medical centers, as well as referral health services through the regency hospitals (see Figure 9). The main priority is given to eradication of communicable diseases. To support the poverty alleviation program, health development focus on improving access to quality health service for poor families, especially young children, pregnant mothers, and old people. Health services for this purpose concentrate on primary health care in community health centers and integrated health posts, provision of clean water, nutritional improvement, supplementary feeding to under-served primary school children, and environmental sanitation.

The health development planning process in Indonesia was implemented through top-down approach. Currently, the planning process evolves to more decentralized fashion. The preparation of health sector development planning at all levels of government is implemented within a national coordinative framework involving two basic approaches, namely bottom up and top down. The bottom up approach refers to a consultation process in which each government level formulates draft annual health program based on proposals submitted from the next lowest government level. The bottom up planning process starts with meetings at village level or the desa/keluarahan level of the LKMD, chaired by village head and attended by sub-district representatives. In the meeting project elements in which consist of activities, source of finance including local government contribution and central government grant are formulated for submission to the next level of government (district). At the subdistrict level or the kecamatan meetings which are chaired by subdistrict head and attended representatives of district, district development planning agency, and sub-district level central government deconcentrated agencies will be discussed the desa/keluarahan proposals. The main purpose of the coordination meeting at the subdistrict level is to review and filter out the proposals considered defective and duplicative of other activities, and prepare the subdistrict plan for submission to the district level.

Kepala Daerah Tingkat II formally requests all regional and deconcentrated central government agencies at district level to prepare health development project submission for forthcoming year. Regional Development Planning agency at district level (Bappeda II) is responsible to collect the submissions and integrate them with those from the kecamatan level. The development proposals are then discussed at the Development Coordination Meeting at district level or Rakorbang Tingkat II. The planning process at the district level is summary of the project proposals supplemented by justification document for each project including the proposed financing sources such as local contribution, provincial contribution, and central grant. The reviewed health proposals are then submitted to the provincial government.

The similar planning process is also utilized at the Development Coordinating Meeting at provincial level involving Provincial Development Planning Agency (Bappeda I), district heads, Bappeda II, deconcentrated central government agencies at provincial level. Following the provincial meeting, there are Inter-Regional Development Consultation Meeting involving several provinces where are located within the same region. The meeting comprises central and provincial representatives to discus project proposals that involve more than one province. The health projects selected from the provincial and regional meeting are assembled and organized in standard format containing priorities activities, description and objective of activities, and proposed financing sources including local and regional contribution.


The bottom up planning approach is completed by the National Development Coordination Meeting or Rapat Koordinasi Pembangunan Nasional (Rakornas) in Jakarta, chaired by National Development Planning Agency (Bappenas) and attended by representatives of Ministry of Health, Home Affairs and concerned central technical departments, Governors, Provincial and District Development Planning Agencies. In this national meeting each Governor makes a formal presentation of the project proposals being submitted from his province. The main purpose of the meeting is to enable central officials to understand and discuss the views of the regional governments.

The top-down planning approach starts with central discussions within Bappenas and Bappenas with Ministry of Health and other technical ministries to develop alternative health development proposals with considering the national targets and issues emerging from the Rakornas. Based on the Ministry of Finance’s estimate of the national revenue and the requirements of the national routine budget, the proposed national development is identified in a meeting between Bappenas and Ministry of Finance. The initial draft of forthcoming national development budget prepared by Bappenas is then reviewed in the cabinet meeting chaired by the President. After approval by the cabinet, the full draft is presented to People’s Representative Council or DPR by the President. After discussions the DPR approves the final budget. The regional governments are not involved in the top-down planning process.

One of the national policy concern to address the health development planning and budgeting issues is how to define an alternative sectoral planning strategy that can preserve past gains and promote a sustained health programs particularly at local level. The macroeconomic adjustment implemented by the central government in 1983, as a response to the dramatic change economic environment in the early 1980s, led to a significant reduction in the central government expenditure on the health programs. This declining public expenditure has had significant impact on the local governments’ expenditure on the sectoral development (see Table 4).

As a response to the regional fiscal issues, in the late 1980s, the government of Indonesia initiated Health Project III, well known as Resource Mobilization Project, in two provinces, East Kalimantan and West Nusa Tenggara. The main objectives of the health project are (i) to improve the quality and accessibility of health services for increasing the health and nutritional status of the community, and (ii) to strengthen health resource mobilization through providing a greater role of local governments and community participation in the health planning and budgeting. The instrument policies of the project applied to the two provinces include (1) providing a greater authority to local government in the planning, budgeting, implementation and monitoring of the health development programs, (2) promoting community participation in the planning, implementation, and monitoring activities of the programs, and (3) promoting pricing adjustment of health services and protecting the poor from high fee of the primary health services.

Table 4 provides illustrative data on the trends of health expenditure for the two provinces from 1982/83 to 1987/88. In East Kalimantan real expenditures fell by 35.5% over the period of time, reflecting not only a 43% cut in central government transfers but also a 18% cut in local government spending. Similarly, in West Nusa Tenggara aggregate spending declined by 23%, as result a declining level of both central and regional government expenditures. Certainly, overall finance levels has not been sustained by either central or regional governments since the structural adjustment initiated by the country in 1983. The two provinces have distinct characteristic in terms of total areas, population density, health indicators, and economic condition (see Table 5)


Health Development Financing

As discussed above, the fiscal intergovernmental relation in Indonesia is biased on the central government. The highly centralized fiscal relation has an important role in determining the structure of health development financing. Before examining government expenditure in health care, it is important to understand complexity of the existing of government finance and its implication for budgeting in health care and flexibility of regional government in carrying out the responsibilities.

Main budgetary sources of public health sector finance in Indonesia consist of central government and regional and local government funds. The central sources include (1) central of Ministry of Health development budget or APBN-DIP, (2) central of Ministry of Health routine budget or APBN-DIK, (3) sectoral development grant to regional governments or Inpres Kesehatan, (4) project aids including grants or loan, (5) salary expenditure grant to regional governments or SDO, and (6) nonsalary expenditure grant for regional hospitals. The regional funds include (1) provincial health office development budget or APBD1-DIP, (2) provincial health office routine budget or APBD1-DIK, (3) district health office development budget or APBD2-DIP, and (4) district health office routine budget or APBD2-DIK. The fragmentation of health budgeting between multiple channels split between the central and regional levels of government for fiscal year 1985/86 is presented in Figure 12. The budgetary flows show that majority of public health sector activities was financed by the central transfer, accounting for about 75 percent of the total budget.

As shown in the budgetary scheme, the central transfer to local governments channeled through APBN-DIP (Rp.112.5 billion), APBN-DIK (Rp.114.6 billion), and Inpres Kesehatan (Rp. 133.9 billion) accounted for about 60 percent of the government budget. From fiscal decentralization perspective, sectoral development grant to regional governments or Inpres Kesehatan has the highest degree of local autonomy among the three central transfers. Even though the Inpres Kesehatan fund is earmarked for public health activities such as provision of health centers, subhealth centers, mobile health centers, drugs, and operational and maintenance costs for the health facilities, the use of this budget is still less restrictive than the others. For example, local governments have authority to determine location of and procure the health facilities including particular types of medicine, and manage operational and maintenance cost of the facilities. The program has important contribution in improving the coverage and the quality of health care in the country. Since the Inpres Kesehatan initiated in the early 1970s, the budget grew significantly from only Rp. 79.3 billion in 1986/87 to Rp. 339.5 billion in 1993/94, implying an average annual growth rate of 27.2 percent over the period of time. The expansion of the health budget overtime has constituted the government efforts at decentralization.


Another decentralization measure initiated by the Government of Indonesia is the Unit Swadana Hospital (self-financing hospital). The program was enacted through a presidential decree in 1991 which was aimed at providing a greater autonomy and flexibility to public hospitals in (1) promoting the social equity and the accessibility, (2) improving the quality of services, (3) improving hospital efficiency through a better resource allocation, (4) retaining hospital revenues and carrying out hospital spending, and (5) promoting resource mobilization such as user fees (Gani, 1997).

The pilot project of the Unit Swadana Hospital policy was implemented in five vertical hospitals with under supervision of the Ministry of Health in 1991. Before the implementation, the concept was disseminated through a series of training programs, seminars and workshops. The hospitals participating in the program was also provided by necessary additional medical and non-medical equipment to satisfy the standard of services determined by the Ministry of Health. Implementation of the self-finance hospitals programs have been replicated to a number of regional hospitals after satisfying the minimum criteria determined by the government. The conditions applied by the government to choosing public hospitals participating in the programs are as follows (Department of Health, 1995).

  1. The hospital has demonstrated efficient performance for 3 consecutive years, as indicated by bed occupancy, length of stay, and turnover interval;
  2. Its cost recovery rate has reached at least 50 percent;
  3. There is evidence of commitment from the hospital administration including the director;
  4. There is evidence of commitment and support from the Ministry of internal Affairs and the local government; and
  5. The community served by the hospital has the ability to pay for its own medical services as indicated by social and economic characteristics of the region.
The government policies in strengthening the capacity of local hospital institution and providing a greater authority to the local hospital administration has been continuously endorsed. In the early 1990s the central government created an operation and maintenance block grant program. The main goal of the program is to improve quality of public hospital service. The grant was transferred directly to the local hospitals such that the local hospitals have power of spending to carry out the responsibilities.

V. Implications of the Decentralization Measures on Sustainability of Health Service Delivery

Decentralization has long been recognized as a means to promote efficiency and responsiveness of the public programs and strengthen community participation. The government policy is sustainable if it promotes increased welfare through better health outcomes, greater equity, more efficient, and greater community participation. This section will discuss the implications of the Indonesian decentralization efforts on the important conditions required in sustaining health service delivery at the local level. The main requirements of the sustainability that will be explored in this section include the intergovernmental fiscal relationship, efficiency, equity, and cost recovery issues.

Intergovernmental Fiscal Relationship

Fiscal decentralization has important role to promote more efficient and equitable provision of public services including health services through a better matching expenditure with local priorities and preferences (Shah, 1994). The implementation of fiscal decentralization policies in Indonesia has been focused on providing greater expenditure responsibilities to local government through the central transfer mechanism. Since the INPRES program initiated in the early 1970s, the general block grant, which represents higher degree of local autonomy than the specific purpose central transfer, has been significantly broadened. The block grant had been expanded from only Rp.599.2 billion in 1986/87 to Rp.2,202.8 billion, implying an average annual growth rate of 21.6 percent during the period of time.

Figure 13 provides spatial illustration on allocation of regional block grant per capita and fiscal capacity, the ability of subnational units to raise revenue from their own sources, as measured by provincial revenue per capita. Measures adopted by the Government of Indonesia in implementing the fiscal equalization grant was established not only on ground of fiscal capacity, but also cost variations and equity indicators such as health and education status, population, personal disposable income, areas, and availability of infrastructure. For example, outer Java provinces such as Irian Jaya, East Kalimantan, and Central Kalimantan that had higher regional revenue per capita received relatively higher provincial block grant. On the other hand, Java provinces including Jakarta, West Java, Central Java, and East Java with modest regional revenue per capita received smaller block grant than the outer Java provinces. One possible explanation is that social, economic and demographic indicators including the availability of infrastructure in the Java provinces are better than those in the outer Java regions.

The intergovernmental fiscal relationship, however, is still highly biased to the central government. The degree of dependency of local governments on central revenues is very dominant. Local government is able to finance only a small proportion of their responsibilities from own revenues. National and regional government budget structure during period of 1975/76-1990/91 is presented in Figure 14. In 1990/91, regional and local governments were responsible for about 16.9 percent of consolidated general government expenditures but raised only about 5.7 percent of consolidated general government revenues. Table 6 provides estimates of vertical imbalance in the country in 1991. The large fiscal deficiency for local units in the country was indicated by a low proportion of own-source revenue to expenditures. For example, without the central transfer at district level the proportion (0.28) is even lower than that at provincial level (0.38).

From international perspective, the level of fiscal deficiency for subnational government, measured by the coefficient of vertical imbalance, is also large (see Figure 15). The fiscal coefficient was developed by Hunter (1977) which attempted to measure the degree of fiscal control practiced by the central government over subnational levels (Shah, 1994). Mathematically the coefficient of vertical imbalance can be formulated as follows.

Coefficient of Vertical Imbalance = 1-((TRsp+TRgp+REVsh+B))/EXP


TRPsp: Specific purpose central transfers to subnational units;

TRgp: General purpose central transfers to subnational units;

B: Borrowing by subnational governments;

EXP: Subnational government expenditures; and

REVsh: Shared revenues.










Equity is another important element of the sustainability of health care in the country. In order to improve distribution and quality of health services, particularly primary health services, the government of Indonesia has continuously provided health centers, sub-health centers, hospitals, medical and non-medical equipment, and health workers including doctors and midwives. These facilities are distributed across the country, with a special attention devoted to the poor and community who live in isolated, remote, and slum areas. As noted above, the primary health services are implemented through an integrated health care network which consists of community health centers and sub-centers, village midwives, and other medical centers, as well as referral health services through the regency hospitals. In the early 1970s, the first five year development plan implemented, number of health center was only 1.277 units and this number increased remarkably to 6.277 units in the early 1990s. This achievement suggested that on average number of population served by one health center have been improved significantly from 96,000 to 28,000 over the period of time. Similarly, number of sub-health centers increased solidly from none in the late 1960s to 18.946 units in the early 1990s, reflecting that on average every health center is supported at least by 3 sub-health centers. Moreover, number of equipped district hospitals and number of beds also grew rapidly over the period of time. In order to improve the quality of services, in line with the increased provision of physical health facilities, number of doctors, midwives, and paramedics who have been trained regularly and distributed across the nation have been expanded over the past three decades.

Indonesia has made solid records in curbing infant mortality rate over the past three decades. Infant mortality rate that accounts account for around 30% of total deaths has become policy concern in the government’s overall strategy of health development. Figure 16 provides illustrative data on performance of each province in curbing IMR in 1980 and 1990. The data shows that some province performed very well in improving the health status and another provinces did not. For example, West Nusa Tenggara had made an impressive record in reducing IMR by 48% over the period of time, implying an absolute decline in number of infant deaths from 282 per 1,000 live births in 1980 to 145 in 1990. Similarly, East Nusa Tenggara and West Java made a solid achievement in reducing IMR from 192 and 200 per 1,000 live births in 1980 to 77 and 90 in 1990, respectively. By contrast, compared with the three provinces, D.I. Yogyakarta just made a 47 cut in IMR over the period of time. Different initial condition of IMR and endowments among provinces and ‘diminishing technical rate of substitution’ of health interventions may justify why each province made different performance in improving the health status. Even though the equity of health status has been improved, the spatial disparity of the availability of health care facilities and the health outcome in Indonesia is still prevalence. Figure 17 presents illustrative data for spatial distribution of IMR in Indonesia in 1990.



Efficient provision of health services is another important indicator pertaining to the sustainability of the health system. Partial empirical evidence on the impact of implementation of decentralization policies on the efficiency in Indonesia exists for health sector, however, it needs to be interpreted with caution.

As been noted above, in the past three decades Indonesia has been remarkably successful in improving health status. The infant mortality rate (IMR) declined sharply from about 142 per 1,000 live births in 1971 to 55 in 1995. Similarly, life expectancy both for Indonesian males and females improved significantly over the same period of time. The impressive health sector performance was associated with the significant expansion in coverage with government-financed primary health programs and community health services, which took place in the early 1970s when the Presidential Instruction (Inpres) program was initiated. The increasing public health expenditure during the oil boom period of the 1970s and the 1980s had significant impact on the coverage and quality of health facilities. During the period of time, the health outcomes have been improved at very significant rate. The Inpres program which includes provision of general purpose block grant and public health block grant allows local governments to improve the coverage and the quality of health care facilities. The block grant program provides flexibility for local government in spending the funds. The establishment of both general and specific block grants and its expansion overtime has constituted the government efforts at decentralization.

However, since 1982 the external economic environment faced by the country has deteriorated considerably as a consequence of sharp decline in real oil prices. The resulting necessity for tight public expenditure restraint to promote macroeconomic adjustment has led to a significant reduction in central government expenditure on the health programs. Under the nation’s highly centralized planning system, the declining central government expenditure on public health programs would threaten the sustainability of provision of health care at local level. Interestingly, despite during the macroeconomic adjustment period, the health status was still improving, but at smaller rate than that during the oil boom period. Ranis and Stewart (1994), using simple multiple correlation between Inpres expenditure on health investment per capita and other variables at provincial level in Indonesia, suggest that during the oil boom period, health investment were positively associated only to the number of health centers per capita; however, during the period of 1984-1988, when the government had fewer funds because of the declining oil revenues, more distributive fashion were adopted in which regions with fewer health facilities per capita and lower life expectancy received larger per capita investments in health.

Recognizing closer attention and responsiveness to local needs and preferences and elimination of administration layers, efficient provision of public health services requires the responsibility for these services to be placed as much as possible in local government. (Shah, 1994).

The technocratic planning strategy, characterized by promoting the government uniform nationwide policies of health programs, also have difficulties in accommodating properly the local needs and preferences into the national policies, and recognizing local specific health issues. Fainstein and Fainstein (1996) describes that the technocrats make explicit the planners belief’s that there is indeed some common interest that technician of goodwill is able to identify and maximize, implying that technician and administrators not only know best but know enough. For example, continuing provision of sub-health centers, part of the overall national policies, is assumed as an effective instrument to improve the expected health indicators. This thinking beliefs that more health facilities expand coverage of services, promotes better services, and automatically increase the quality of health.

The spatial distribution of sub-health centers versus the improvement of IMR between 1993 and 1990 among provinces is presented in Figure 18. The four bars from left to right in each province, respectively, represent ratio of health center and sub health center per 100,000 population in 1990 and ratio of health center and sub health center per 100,000 population in 1993. The improvement of IMR each province during the period of time is divided into five groups as illustrated by five different colors. For example, availability of health facilities as indicated by the ratio of the health facilities in Irian Jaya and North Sulawesi in 1990 and 1993 was better than East Nusa Tenggara, West Nusa Tenggara, and the Java provinces. But the improvement of infant mortality rate in the former provinces was achieved at smaller rate than that at the latter provinces. Similar empirical evidence was found in the relationship between the improvement in IMR and health budget per capita and immunization coverage (see Figures 19-21). This result suggests that the relationship between the availability and the health outcomes assumed by the technocratic strategy was not the case in some provinces during the period of time. It might also indicate that there might be other important factors influencing the health outcomes that was not considered properly in formulating the planning strategy.

The lack of local participation as consequences of the central approach also can be seen on numerous empirical evidence of the way the local regions determine to where location of health facilities will be built. According to the Home Affair’s regulation on provision of health services, local governments are responsible to provide land for new health facilities development that is primarily financed by central government transfers. But, some empirical evidence indicate that local governments providing land located on low cost land areas, where are generally at remote location, less accessible by common modes of transportation, and very low population density. Another example, the sectoral development concern is barely raised by the local government officials in the national planning meeting events.



Cost Recovery

The capability of local government and health institutions financing health care to maintain acceptable level of services is another important factor affecting the sustainability of the public services. The fiscal intergovernmental relations, as discussed above, is strongly biased to the central government. This fiscal scheme does not only impede scope for regional governments to generating their domestic financial resources, but also has little incentive for the regional administrations to contribute properly particularly in social programs including health sector. From local government’s perspective, under the fiscal system, expecting the central government transfers as their main source of revenue is more determined and attractive than conducting the local ‘experimental’ reform to strengthening their financial resource base.

The result shows that proportion of cost recovery of health services for hospitals services, as reflected by a ratio of revenue to recurrent expenditures, was 22.0% in 1984/85 and declined to 19.9% in 1985/86. In contrast, a World Bank survey of Chinese hospitals showed cost recovery ratios averaging over 80% of recurrent expenditure(World Bank, 1991). This relatively low proportion of the cost recovery for health services in Indonesia suggests that local governments lack incentive and initiative to generate new financial sources to sustaining the sectoral development at local level, even though the alternative policy has a potential prospect.

VI. Concluding Observations and Policy Implications

The Indonesian experience demonstrates that the decentralization has taken the form mainly of limited delegation, with little 'real' decentralization (devolution). Elements of deconcentration and devolution exist, however, through general purpose grant, specific grant, and local governments' own funds. The central transfer for health, education, and infrastructure has contributed significantly in improving equity of health facilities and health status. The centrally-directed, one-size-fits-all program of public health service development, mainly financed by the central transfer program, has been instrumental in achieving the national goal of ensuring that certain basic health infrastructure is available throughout the country. However, once such primary needs have been met, it will become increasingly difficult to formulate a uniform health program that satisfies local needs in such a varied country as Indonesia. In addition, the demographic, economic, epidemiological transitions experienced by the country in the last four decades have contributed to the complexity. Underutilized health facilities among the poor, prevalence of unequal health outcomes, and the low cost recovery are main constraints of the centralized structure that might impede the sustainability of the health care delivery.

A number of pilot programs of decentralization in health care delivery implemented by the government have indicated potential benefits --more equitable, more efficient and better cost recovery--which are important elements in sustaining the public service at local levels. Sustainability of the health care delivery in the country can be potentially achieved by providing a greater degree of decentralization in planning and fiscal to local governments.

Given current political conditions demanding higher degree of local autonomy and common the obstacles to recent decentalization efforts in sustaining the provision of health care at local levels, further decentralization policies should continue to emphasize: (1) providing more expenditure responsibilities to local governments in the provision of public services including public health, (2) improving regional resource mobilisation by providing more local revenue responsibilities, (3) promoting equitable development by involving widespread regional participation in health planning activities, (4) improving the intergovernmental transfer by increasing proportion of the general block grant, (5) strengthening local capacity in human resources and institutions; and (6) promoting private participation in provision of health care.



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