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BBC's south-east Asia correspondent Jonathan Head
"The speed with which the new law was drawn up may be its undoing"
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Monday, 1 January, 2001, 13:28 GMT
Jakarta starts devolving power
A previous rally held by Acehnese in Jakarta
Acehnese have long been calling for independence
Indonesia has begun a new era of devolved power to its outlying provinces, aimed at soothing separatist tensions and keeping together the world's largest archipelago.

From January 1, the country's 29 provinces and some 300 districts become legally empowered to decide on their own budget and administration.

Locals in Irian Jaya with the banned Morning Star flag
The banned Morning Star flag was raised in Irian Jaya last month
Local administrations will also be allowed to keep a greater share of revenues from natural resources - a move to appease resource-rich regions such as Aceh and Irian Jaya, where anger over Jakarta taking much of local revenue has fuelled separatist movements.

But the hastily-prepared plan has caused jitters among investors, who fear that the country's regions are ill-prepared to take on their new responsibilities.

Revenue control

The plan is based on legislation passed in 1999, during the government of President BJ Habibie.

Correspondents say that the fact it was passed so quickly after the fall of former President Suharto in 1997 indicates how much the new government was concerned by separatist anger in the regions.

Gunman, Aceh
Separatist violence in Aceh has left 5,500 dead in the last decade
Under the highly-centralised Suharto regime, all major decisions were made in the capital and the huge natural wealth of the outer islands was channelled back to the central government's coffers in Jakarta.

Under the new plan, regions will now control 80% of revenue from mining, forestry and fishing and 15% percent of revenue from oil and gas.

They will also have more autonomy in administering health, education, land rights and investment.

In May even greater autonomy will be offered to Aceh and Irian Jaya.

Investors alarmed

But the plan has alarmed investors and financial bodies, including the World Bank and IMF.

Investors maintain there is a potential for much mismanagement under the laws.

Aceh independence rally
Hundreds of thousands have rallied for independence in Aceh
Supplementary legislation on the implementation of the plan and the new relationship between Jakarta and its provinces has yet to be drawn up.

Numerous loopholes could also encourage corruption among local officials competing for a share of Indonesia's wealth.

But President Abdurrahman Wahid has said decentralisation is the only option to holding the country together.

A senior official who helped draw up the laws, Andi Mallarangeng, said in Tempo magazine that Indonesia could not delay the plan because it was integral to the transition to democracy.

But he added: "There must be a sense of crisis in the central government to genuinely prioritise this regional autonomy policy."

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See also:

14 Nov 00 | Asia-Pacific
Aceh calls for 'Timor-style' vote
01 Dec 00 | Asia-Pacific
Flag comes down in Irian Jaya
13 Sep 00 | Asia-Pacific
Analysis: Indonesia's fragile archipelago
20 Oct 00 | Asia-Pacific
Wahid marks tricky first year
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