INTRODUCTION

The prologue to the first Law on Local Government (Law 22/1999) resoundingly announces its intention to (1) underscore the principles of democracy, social participation, equity and justice and (2) give emphasis to local potentialities and diversity. The prologue to the companion Law on Fiscal Balancing between the Central Government and Regional Governments (Law 25/1999) is equally forthright in its intention to (1) provide the opportunity to increase democracy and local capacities, (2) enhance social prosperity and create a civil society free of corruption, collusion and nepotism and (3) increase social participation, openness and responsibility. These laws by their stated objectives and identifiable phrasing stand out as key components of a period of intensive legislative reform initiated by President B.J. Habibie. The effect of these critically important laws on decentralisation, and more particularly on the subsequent management of natural resources, cannot be disentangled from a whole range of related laws and decrees that have carried forward the process of reform since the fall of President Soeharto's New Order. Contrary to their proclaimed rhetoric, however, these laws have not led to the establishment of more effective means for the management of local resources, or to greater openness and responsibility in the use of such resources. In giving the widest possible authority to hundreds of regional governments, they have created a diversity of systems of management and mismanagement with no mechanism for supporting one or discouraging the other.