George M.

Guess
Open Society Institute

Comparative Decentralization Lessons from

Pakistan, Indonesia, and the Philippines

This article provides an analytic framework to guide regimes that are designing or implementing
decentralization programs. It is based on a comparison of three Asian cases of fast-track decen-
tralization. The framework suggests that regimes contemplating devolution must face fundamental
issues of (1) background support, (2) culture and institutions, and (3) technical design and se-
quencing. It can be used by regimes to compare the relative difficulty of fundamental challenges to
decentralization with their own capacity and potential for effective response. The three regimes
responded similarly to the first two issues and differed in how they performed technical activities to
implement the decentralization programs. Within this technical sequence, the regimes varied widely
in performance. In that the Philippine program has attained better performance so far, the differ-
ent responses of that regime are significant. More research is required to explain differences in
technical performance in the Philippines and other similar programs and to attribute measures of
decentralization success to these differences.

Introduction
Regimes that are contemplating decentralization pro-
grams are often reluctant to take the political risk of un-
known technical consequences in design and implementa-
tion. Regimes know that policies are often based on myth,
and decisions on imperfect information. Policy makers
would like to eliminate myths and reduce uncertainty be-
fore proceeding with programs such as decentralization.
In 1996, policy makers at the Albanian Ministry of Inte-
rior asked me to provide comparative regional informa-
tion on how to prevent fiscal transfers from acting as a
disincentive to local revenue mobilization. Without this
information, which was unavailable at the time, the min-
istry’s state secretary for local government was reluctant
to push for devolution. Other regimes have also found them-
selves at this point, and they need an empirically based
guide or framework for the successful design and imple-
mentation of decentralization. Considerable advice has
been provided by international donors, consultants, and
university personnel on decentralization. But at this stage,
regimes need more than technical advice on single issues
such as fiscal transfers or tax policies.
This article provides a preliminary but empirically
grounded framework for regimes that are contemplating
decentralization. This framework, which is based on the
experiences of Pakistan, Indonesia, and the Philippines,
predicts that regimes will face both general background
challenges (top support, decision capacity, and political
culture) and specific technical design issues. They need to
respond to intense criticism that neither the regime nor the
country can meet these decentralization challenges. The
framework provides preliminary answers to these critics.
To Decentralize or Not to Decentralize?
Regimes are advised that decentralization is an efficient
program that can improve performance. Efficiency is a very
broad category in the literature (Guess, Loehr, and Vazquez
1997, 10–26) that includes activities ranging from political
representation to service results. The notion of an efficient
local government is that it can provide more responsive and
innovative services and, in turn, can be held more account-
able for operations by local voters than nationally provided
Dr. George M. Guess is director of research, Open Society Institute, Local
Government and Public Service Reform Initiative, Budapest, Hungary. Previ-
ously, he was public budgeting specialist for the Pakistan Fiscal Decentrali-
zation project, financed by the Asian Development Bank (2001–02), and
technical backstop for the Indonesia Local Government Financial Framework
project (2001–02), financed by the U.S. Agency for International Develop-
ment. E-mail: gguess@osieurope.org.

Comparative Decentralization Lessons 217

operations. Regimes design and implement programs to
decentralize authority and power to locally autonomous units
(as opposed to a deconcentration of central government ser-
vices locally or administrative decentralization) for a vari-
ety of reasons. The most common are related to policy or
technical concerns: to generate local pressure for national
or provincial state modernization; to provide the public with
cheaper, better-quality, and greater service coverage; to
achieve budget savings by cutting the central provision of
local services; to widen political support for and increase
the level of trust in the central regime; to increase local par-
ticipation in planning and budgeting to produce service mixes
consistent with local preferences; to produce fewer white
elephant or incomplete capital or development projects; to
hold the country together; to permit regional or local ex-
perimentation in program design; and to prevent the disin-
tegration of the central government (Burki 2001; Richburg
1998).
A related rationale for decentralization is economic and
fiscal: Decentralized decision making is crucial for effec-
tive organization in that it promotes internal competition
and entrepreneurial talent (North 1990, 81). Fiscal decen-
tralization allows local governments to finance capital in-
vestments on their own through responsible long-term bor-
rowing in private markets. This strengthens the autonomy
of local governments and the fiscal condition of central
governments by reducing the need for grants from the state
budget or loans from international financial institutions
backed by sovereign guarantees (USAID 2002, 1). In ad-
dition, resolving vertical fiscal imbalances in intergovern-
mental systems by devolving authority allows a closer cor-
respondence between revenue means and expenditure needs
(Shah 1994, 40). A slightly different rationale focuses on
the macropolitical benefits for democratic stability and
responsiveness, that is, expansion of the governing coali-
tion to increase the inclusiveness of the central regime.
Governing coalitions may want to increase their legitimacy
by expanding their base of support and by reducing con-
straints on their policy freedom. Autocratic regimes are
Table 1 Comparative Decentralization Performance
Share of subnational SNG sets tax
own-revenues in total base and rate
revenues** (percent)
Philippines 42.8 Yes
Pakistan 5.0 Yes
Indonesia 25.4 No
**Source: Government Finance Statistics Yearbook 2001 (Washington, DC: International Monetary Fund). With the exception of Pakistan for which local statistics have not yet
been reported, the measures of local revenue sufficiency were obtained by dividing total revenues and grants by revenues from other levels of national government and
subtracting this amount from 100 percent.
SNG = Subnational government.
218 Public Administration Review • March/April 2005, Vol. 65, No. 2
typically held in place by small groups of backers who
keep them in power (Bueno de Mesquita and Root 2002,
31); this increases their longevity, but risks popular dis-
content and the opposition of international donors. Decen-
tralizing power to the lower tiers of government has been a
means of enlisting new supporters, which partly explains
the recent devolution program in Pakistan.1
Six major performance indicators are commonly used to
measure program success or failure. Table 1 employs these
and other well-known measures to evaluate three cases of
devolution implementation. First, local governments should
increase their own-source revenues. Dependence on central
transfers should decrease and the local proportion of budget
financing should increase after decentralization. This mea-
sures the sufficiency of local revenues to finance budgets.
Second, with combined formula-based transfers and new
local sources of revenues, local governments should increase
their funding stability. The basis for allocating central trans-
fers is often opaque and negotiated. Coupled with central
revenue shortfalls, the budget system produces sudden fund-
ing cutoffs that negatively affect local services. Third, local
government budget autonomy should increase. In contrast
to central controls and extensive earmarks of local funding,
decentralization should give local officials increased author-
ity to shift funds to improve service delivery. Fourth, decen-
tralization should be associated with improved service de-
livery. Services such as health, education, and water supply
should be of higher quality and delivered at lower costs to
more citizens, that is, technical and allocative efficiency, re-
spectively. Fifth, the performance of services and the de-
centralization process itself should be monitored and evalu-
ated by citizen groups through surveys and social audits.
This should lead to greater accountability and responsive-
ness of elected and appointed officials to local citizens. Fi-
nally, decentralization should lead to greater local authority
to hire and fire appointed officials, meaning greater respon-
siveness of local governments to citizen needs. Officials
would no longer be appointed from the center and paid for
by the local governments (Winkler and Hatfield 2002).
SNG authority to SNG mayor/ SNG can design/ Dedicated and Improved
set budget council elected implement org- rule-based fiscal service
priorities staffing for transfer/tax outcomes
service reqs
Yes, but central Yes Yes Yes NA
government
still earmarks
Yes Nazim by No Yes NA
council
No Mayor by No No NA
council
 Regimes are regularly provided these arguments and
multiple measures for decentralization. They know it is
efficient to decentralize, but major inefficiencies can re-
sult from poorly designed and implemented programs. For
instance, they could lose their elected or appointed jobs,
and the country could descend into (perhaps greater) chaos.
What should they do?
Comparative Methodology
To provide applied lessons to policy makers who are
deciding whether or how to engage in decentralization,
comparative field lessons are needed from similar cases.
The matched-case method of comparison that Xavier
(1998) uses to compare Malaysian and Australian budget
reforms is useful for this purpose. That method was used
in this research to select countries with similar intergov-
ernmental structures that have instituted similar reform
programs under similar regional conditions. Classification
of the similarities allows one to hold constant the key fac-
tors expected to influence reform, reducing the problem of
multiple causation, which otherwise besets comparative
analysis. By picking decentralization cases with similar
key variables, this study focused on the measures, condi-
tions, and variables that are different. Focusing on the dif-
ferences of matched cases allows for a more rigorous ex-
amination of factors that may account for variation in
decentralization program results.2
Background and Context on Matched
Program Cases
The three programs are similar in that they are “fast track.”
None of them was donor driven, and international donors
such as the Asian Development Bank and the U.S. Agency
for International Development continue to play critical sup-
porting roles. For the purposes of matching cases, these are
similar regional examples of once-centralized states that have
evolved into federal governance systems. Through this evo-
lution, all three countries have maintained relative stability.
All three have enforced macroeconomic discipline, which
tends to ensure political stability by stabilizing prices, em-
ployment, and budget deficits (Guess, Loehr, and Vazquez
1997, 39). Stability can be used as a resource by central
regimes to reallocate “policy latitude or “agency autonomy”
to its counterparts in lower-tier governments (Peters 1978,
168). In political and economic stability, the Philippines was
ranked tenth most stable and Indonesia eighteenth by Eurasia/
Lehman Brothers (Economist 2003, 100). Economic growth
remains strong in both countries, with gross domestic prod-
uct increases of 5.8 percent and 3.9 percent, respectively,
from the same quarter in 2002. In the context of relative
stability, all three regimes have attempted to reallocate au-
tonomy and authority through decentralization programs.
Despite recent terrorist-control problems and internal
criticism from a vibrant local press, the Pakistani regime
continues to govern through civil service and military in-
stitutions, with reasonable success. Recent changes and
security threats since September 11 have kept President
Musharraf’s regime in power and have increased support
for devolution. Fear of regional fragmentation in light of
growing poverty and inequality—partly attributable to poor
local services—has been high among all three regimes.
Pakistan’s program abandoned deconcentrated subnational
governance consisting of provinces, divisions, and districts
and created three new levels of countrywide elected gov-
ernment: districts (96), tehsils, or towns (337), and union
councils (6,022). The program implements the intent of
the May 2000 local government plan. The operating prin-
ciple is to transfer power downward to citizen groups and
district-level governments to provide and finance needed
basic services that were not being provided by either the
provinces or the central government (NRB 2000, 9). An
impetus for the devolution program is that the central gov-
ernment—the National Reconstruction Bureau—rightly
feared that popular dissatisfaction with its performance was
growing and that this threatened the state’s legitimacy to
hold the nation, four large and dissimilar provinces, to-
gether. Power was formally transferred to the new district
tier of government in August of 2001. In 2002, it was esti-
mated the districts generated an average of 5.0 percent of
their own revenues (table 1). That is, 95 percent of their
funds were still provided from transfers and shared rev-
enue sources.3
The Philippine decentralization program has been de-
scribed as one of the most far reaching in the developing
world. A long tradition of political–administrative cen-
tralism existed in the Philippines that was initially chal-
lenged by the concept of local autonomy, enshrined in the
Constitution of 1987 and later in the Local Government
Code of 1991 (Republic Act 7160). This was the fifth at-
tempt since 1946 to empower the four levels of local gov-
ernment with political and administrative authority (Yap
and Sator 2001, 1).
The program began with the implementation of the Lo-
cal Government Code in 1991 (Galang 2001, i) and ex-
panded the responsibilities and authority of the 76 prov-
inces, 1,540 municipalities, 66 cities, and 42,000 barangays
(precincts or wards). The major change was the expansion
of city, municipality, and barangay jurisdiction over the
planning and provision of hospitals, social welfare, envi-
ronmental protection, public infrastructure, and zoning. The
center would henceforth support or supervise rather than
dictate or control local activities in these areas (Miller 1999,
15). An internal revenue allotment formula transfer based
local financing on population (50 percent), equalization
Comparative Decentralization Lessons 219
(25 percent), and land area (25 percent) (Miller 1999, 15–
16). In 1999, the allotment actually exceeded the costs of
devolved functions and other mandates. Reflecting high
levels of regime support for the reform, this led to a decen-
tralization rarity—a centrally funded surplus for local gov-
ernments.
The Indonesian “big bang” devolution program com-
menced in January of 2001, implementing two laws signed
in 1999 (Alm, Aten, and Bahl 2001). It has been described
as “one of the fastest and most comprehensive decentrali-
zation initiatives ever attempted by any country” (USAID
2002, 1). The program transferred power over core local
services primarily to the 268 districts and, to a lesser ex-
tent, the 31 provinces and roughly 350,000 villages. The
program broadly expanded local authority over new ser-
vice facilities and sectors. To ensure that local units actu-
ally perform core functions consistent with minimum ser-
vice standards, Law 25/2000 provided technical criteria
for local service quality, sufficiency, and cost. This ser-
vice-monitoring system now has to be tested and imple-
mented. The Indonesian government and international do-
nors continue to support the program, with positive results.
The Pakistani and Indonesian programs are similar in that
both devolved authority to local governments, largely by-
passing the provinces and shifting large groups of civil
servants to the districts to provide them with technical
capability.
To summarize program similarities, all three countries
devolved authority for programs that were formerly the
responsibility of higher-tier governments. The three re-
gimes (Philippines, Pakistan, and Indonesia) decided to go
full speed ahead on reforms by (1) devolving major func-
tions, (2) assigning revenue authority and block grant fi-
nancing, (3) transferring cadres of central and provincial
officials and positions to administer the decentralization,
and (4) organizing local elections for councils and mayors
to hold local administrations accountable. All are financ-
ing the devolution and new responsibilities with entitle-
ment shares of higher-tier revenues (Pakistan’s “divisible
fund/local fund”). All transferred substantial numbers of
administrators and their positions from higher-tier govern-
ments to provide the technical resources for implementa-
tion (70,283 in the Philippines, two million in Indonesia,
and about 700,000 in Pakistan).
Of course, the paths were not completely similar, and
there were minor differences in implementation. First, the
legal basis for local governments existed in the Philippines
prior to the reform. This meant that Indonesian and Paki-
stani policy makers had a bigger job ahead. On the other
hand, during the 1947–58 period, Pakistani local govern-
ments operating under administrative decentralization fi-
nanced 95 percent of their needs with own-source revenues.
Following this postpartition period, local governments were
220 Public Administration Review • March/April 2005, Vol. 65, No. 2
weakened by increasing local partisanship and intrusions
from the central bureaucracy (Shah 2003). This suggests
that Pakistan had a local government tradition that was short
circuited and is now being reconnected. Thus, the differ-
ence between Pakistan and the Philippines is narrower still.
Second, while the Philippine reform focused largely on
fiscal devolution and not on political decentralization, an
all-at-once sequence was followed in Pakistan and Indo-
nesia—fiscal and political decentralization. Third, higher-
tier administrators deployed to local units are to be tempo-
rary in Pakistan and have been permanent in the Philippines.
Major deployments are still to be made in Indonesia. Nev-
ertheless, the programs are substantially similar for com-
parative purposes.
Challenges to Decentralization Design
and Implementation
The proposed policy framework suggests that regimes
face three types of constraints in the implementation of
decentralization : (1) background support and local tech-
nical capacity, (2) cultural-institutional issues, and (3) tech-
nical design and sequencing issues (figure 1). Each con-
straint should be recognized by policy makers as a trigger
point for review, course corrections, or possibly halting
decentralization programs. The three regimes studied re-
sponded effectively and similarly to the first two sets of
constraints. Their performances differed in how they re-
sponded to the third set of constraints: technical design
and sequencing of activities. Regime responses allowed
comparison of similar cases responding differently to tech-
nical sequencing challenges. With impact data (which we
do not have), one could attribute devolution program re-
sults to differences in regime abilities to respond to cul-
tural challenges and to design effective technical sequences.
Using the proposed framework to compare the three devo-
lution programs facing common constraints, one can con-
firm or reject the importance of the constraints and focus
on the successes and failures in response to these constraints
and measure their effects on program results.
Background Conditions
Opponents often argue these conditions must be imme-
diately present for decentralization to succeed. Without top-
Figure 1 Challenges and Constraints to
Decentralization Implementation
1. Background 2. Cultural/ 3. Technical
institutional
support design/
(Regime support/ (Political culture/ sequencing
local technical civil society/ (Similarities/
capacity) institutional differences)
rules)
level support and local technical capacity, it is argued, de-
centralization programs must fail. In fact, background con-
ditions are variables rather than constants, and they can be
met with supporting public statements by the regime and
effective legal action (for instance, the authorization of laws
and regulations).
Top-Level Regime Support
For successful implementation, regime support4 should
exist in three forms: (1) the authorization of legal and regu-
latory frameworks, (2) the provision of adequate local fi-
nancing, and (3) the authorization of oversight and control
structures. While sustained regime support exists in all three
cases, problems remain.
First, as indicated, organic laws have been promulgated
in all three countries and supported by the respective re-
gimes. Possibly the strongest support has been provided
by President Musharraf, who made the devolution the cen-
terpiece of his governance reforms, widening regime sup-
port in the face of major national security threats and a
long legacy of corrupt and poorly delivered local services.
Second, regime support is typically measurable in finan-
cial support provided to local units. One of the greatest
threats to devolution and local government reform is the
failure to provide sufficient resources to meet needs and
local aspirations (Cochrane 1983, 6). In Pakistan, local
governments have been given new statutory sources of
revenue. They now have the independence to decide on
tax rates and fee levies. By contrast, the Indonesian or-
ganic laws (22 and 25/1999) did not assign new revenue
powers or borrowing authority to local governments. This
jeopardizes the link between costs incurred and services
demanded by local citizens (Alm, Aten, and Bahl 2001,
7). Third, central authorities (regimes) demonstrate sup-
port for devolution by emphasizing supervision and over-
sight of the programs over bureaucratic tendencies to in-
terfere and control. In all three cases, major opposition
from central (in the Philippines) and provincial (in Paki-
stan and Indonesia) authorities had to be overcome. Even
after overcoming opposition long enough to promulgate
organic laws, transitory leadership with vacillating sup-
port threatened the program in the Philippines. The Phil-
ippine Department of Health had eight changes of leader-
ship during 1991–2001, which held views ranging from
recentralization to continuing support for the reform
(Razon-Abad 2001, 7–8).
Local Technical Capacity
The most immediate issue is whether the newly em-
powered tier of local government can absorb its new rev-
enue-raising and expenditure assignments. Opponents of
decentralization often focus on the lack of local capacity
to oppose or derail the program. There is widespread con-
sensus in Pakistan that without the required skills, sys-
tems, and resources (within the local institutions) the coun-
trywide decentralization and devolution program will re-
main largely unimplementable (Khan 2002, 4). Manor
(1999) suggests that countries devolving after initially
deconcentrating services (that is, administrative decentrali-
zation) have an advantage in that this provides a technical
foundation for autonomous decision making. Consistent
with this conclusion, the three country programs used three
similar mechanisms to reduce the absorptive-capacity
problem.
First, based on newly assigned tasks, skills and systems
have been or are being transferred from higher-tier gov-
ernments to local governments. About two million central
staff will be transferred in Indonesia and more than 70,000
have been transferred in the Philippines. Positions, people,
equipment, and operating norms have all been transferred
to enable local units to perform their assigned tasks more
effectively. Second, reporting and control systems had to
be shifted from central to local accountability. Departmental
structures, routine approval processes for licenses and per-
mits, and budget and accounting reports all had to be re-
routed to serve local needs rather than the control and com-
pliance rules of the central government. In Pakistan, for
instance, the Northwest Frontier Province restructured 26
departments, downsizing and refocusing them according
to a new distribution of functions. This enables provinces
to monitor, regulate, and supervise local district operations
without controlling their affairs (World Bank 2002a, 10).
Third, initial resistance to decentralization was strong
in all three countries, based on the argument that locals
were not to be trusted with central funds and should be
monitored closely. Pakistan has initiated at least four re-
forms in the name of empowering local governments since
the 1950s. All were incomplete reforms and were largely
reversed by later regimes, which argued for a lack of local
technical and political capacities. In Indonesia, similar ar-
guments have been raised about the local capacity to ab-
sorb fiscal and technical resources. Several international
evaluations concluded there was little advance preparation
for decentralization and that local governments were largely
unprepared for their new tasks (Alm, Aten, and Bahl 2001,
5). Coupled with the tradition of “waiting for the central
government to act” (Alm, Aten, and Bahl, 2001, 9), top-
level support was needed to overcome the perception that
capacity problems were so severe as to jeopardize the en-
tire rationale for the program.
Cultural-Institutional Issues
Opponents of decentralization often argue that (1) cen-
tralist cultures value centrally directed nepotism and pa-
tronage more than issue-based local politics; (2) the lack
of intermediary organizations for exercising citizens’ voices
Comparative Decentralization Lessons 221
will prevent local accountability; and (3) weak institutional
systems will reject universal norms and rules that are irrel-
evant to local cultural practices in such obvious areas as
tax assessment and auditing. Such cultural and institutional
issues constitute a second set of challenges to which re-
gimes contemplating decentralization must respond.
Political Culture
In developing countries, political culture is often viewed
as a threat or constraint rather than as an opportunity to
build on the achievements of decentralization. Political
culture consists of those shared values and attitudes that
affect institutional and policy decision making (Inglehart
1988). It is what determines how people behave when they
are not being watched. It can also be recognized as “the
way things are done around here” (Economist 2002, 53).
Opponents of decentralization argue that culturally rein-
forced systems are not easily changeable in the short run.
The common cultural feature is centralist decision making
and popular distrust of frequently corrupt governments.
The trick is to distinguish those elements of the politi-
cal culture that genuinely deter program results and can
only be changed in the medium term from those that are
distinctive but can be modified or built upon to facilitate
program results in the short run. Some cultural practices
do not really affect the course of decentralization and can
be changed only in the long term, such as rote educational
practices, nepotism in civil service hiring, and staff loyal-
ties to groups and families over formal organizations. These
are important and distinctive—but they may not be impor-
tant to program implementation. More important for de-
centralization are practices that directly affect central or
local government systems and are changeable in the short
term. For example, distrust of government (revenue col-
lections), family and tribal loyalties (budgeting for devel-
opment projects), and peremptory or arbitrary power over
underlings (auditing) would affect decentralization imple-
mentation. Persistent administrative practices such as the
generation of statistical reports (budget reports that are often
unread) and centralized expenditure controls (to preserve
hierarchical power within ministries) can be changed by
modifying internal incentives. For example, statistical re-
porting can be converted into useful analysis for budget-
ing and auditing; passive line management can be turned
into active program implementation by giving them tar-
gets and enforcing expenditure controls that already exist.
Culture may be turned from a static obstacle to the dy-
namic foundation on which a decentralization program can
be built. 5
Civil Society
Cultural and civil society issues are related in that re-
gimes governing in centralized cultures generally repress
222 Public Administration Review • March/April 2005, Vol. 65, No. 2
the development of intermediary civil society organizations,
such as the media, unions, citizen associations, and politi-
cal parties. Opponents of decentralization argue that if the
goal is democratic decentralization and the clusters of in-
terests are missing or of the wrong kind, it is difficult to
develop representative political parties in any but the nar-
rowest sense, that is, corporatist parties representing the
state and industry. Without sustaining organizations to fa-
cilitate governance, devolution programs are likely to de-
teriorate into chaos and revert to centralism.
In developing societies, neither autonomous local gov-
ernments nor powerful civic organizations exist. Never-
theless, repressed local and civic traditions may exist, as
in Pakistan, which the decentralization program can reac-
tivate or energize. Conditions of repressed civil society or
“nascent social capital”—norms, trust, and networks fa-
cilitating coordinated action (Putnam 1993, 167)—can
serve as the foundation for successful institutional changes
required by a decentralization program. Manor found that
even under conditions of repressed civil society—for in-
stance, in Cote d’Ivoire during the 1980s—the psycho-
logical impact of decentralization programs can catalyze
greater participation and associational activity at lower
levels (1999, 57). In his view, decentralization programs
can make entirely adequate achievements in the absence
of lively civil society and can make up for them in the
short term. The absence of full civil society need not be
an obstacle to program implementation.6 Decentralization
programs need to identify these useful cultural practices
and build on them, rather than relying on systems imposed
from the outside, often from a combination of poorly de-
signed donor programs and imported consultants. Even
in Eastern Europe and the former Soviet Union, where
civil society did not formally exist, local party organiza-
tions provided leadership skills to members that are now
being put to use in the development of civic institutions in
that region (Jacobsen 2000). Based on these conclusions,
the Pakistani regime included civil society creation as part
of its devolution program.
Institutional Systems and Practices
Institutions are the formal and informal rules, the sys-
tems (personnel, budgeting, procurement) and incentive
structures (tax codes, assignments of intergovernmental
functions), that shape the behavior of organizations and
individuals (North 1990; Burki and Perry 1998, 11). Many
of these practices seem immutable and run counter to the
Western values that are central to devolution: transparency,
accountability, due process, and majority participation in
public decisions. Local parties and elite groups often op-
pose modern institutional values as “imperialistic” and “im-
posed outsider” values to those that prevail locally. Never-
theless, obstructionist institutional practices can be
modified with the right incentives. In Uganda, enforcing
readiness criteria through performance agreements has im-
proved the reporting of health and education expenditures
at the local level and has produced a 60 percent increase in
social expenditures reaching clients. Incremental changes
in core reporting-system rules have produced sustained
modification of institutional practices (Brooke 2002). Para-
doxically, Cochrane (1983, 5) found that some of the most
authoritarian regimes, which guarded power jealously, also
promoted local government reform (such as Nigeria and
Pakistan). The current Pakistani devolution program was
initiated by a military government. That regime, now partly
legitimated by election results, has been attempting to set
up incentives to channel local values and practices into a
workable system that will produce service results and the
popular trust required for effective governance.
The background conditions discussed previously reflect
deeper institutional practices that can impede the progress
of any devolution program. They have been presented by
cautious supporters and opponents of decentralization alike
as deeper systemic problems of values and attitudes. While
they cannot be ignored in program design, they can be con-
verted to shorter-term issues. For a large number of decen-
tralization programs, including the three cases examined
here, neither institutional history nor deeper cultural traits
need be viewed as constraints to devolution. Those fea-
tures of local political culture and institutions, such as the
Pakistani administrative tradition of local governance, need
to be built upon to support resource and technology trans-
fers that are consistent with an appropriate sequencing of
the decentralization program. Instead, many believe the
larger constraints to successful decentralization are poor
planning and lack of financing (Cochrane 1983, 6). These
constitute a third set of challenges to which regimes must
respond (figure 1).
Technical Design and Sequencing
The literature on the design of institutions indicates the
importance of getting incentives right and taking into ac-
count cultural values (North 1990, 137–38). But very little
has been written on options for getting the technical se-
quence right for the actual installation of institutions. Suc-
cessful decentralization requires creating new institutions
and building on existing practices, with support from re-
gimes and intermediary organizations. The implementa-
tion experiences, or the decisions and activities pertaining
to the three programs, suggest that research should focus
on the technical design and sequencing stage (figure 1).
The questions raised by the analytic framework are: (1)
How have the three programs been sequenced, and (2) what
difference has the sequence made to results? The matched-
case approach allows one to review the similarities and
attempt to link the differences to program results. One dif-
ficulty with the comparison is that, in most programs, more
than one step is being implemented at each stage and, within
each step, differences exist in the scope and intensity of
activities. This affects results and, to provide fully reliable
policy lessons, requires more precise data than are avail-
able at this point.
Similarities
From the program comparison, it was found the three
countries followed an approximate sequence of eight major
activities. First, all three countries began to consider devo-
lution after they had achieved relative macroeconomic sta-
bility. This is widely considered a prerequisite of decentrali-
zation, and International Monetary Fund program conditions
focus on the establishment and maintenance of stabilization
(Guess, Loehr, and Vazquez 1997, 33). Pakistan began its
treasury control efforts in earnest in 1999, and the current
regime’s intent is to integrate local fiscal and treasury op-
erations into a single central bank account. Efforts are being
made to strengthen internal controls and audit systems at
the district level to ensure proper spending controls. To pre-
vent threats to macroeconomic control, local units have not
yet been given short-term cash management or long-term
capital borrowing authority. The Philippine Department of
Finance has been working since 1992 on the supervision of
local treasury officers and the improvement of internal con-
trol and accounting guidelines. Interest is growing in more
sophisticated cost-accounting systems as well, with a pilot
program initiated in 2001. Indonesia has shown more inter-
est in local borrowing and financing of infrastructure and
development than in macroeconomic control. There is still
no system of fiscal-transfer monitoring. Of the three cases,
Indonesia seems to have stressed macroeconomic control
over local finances the least, which could lead to unsustain-
able local financing problems later in the form of arrears
and fiscal deficits.
It was found that in the second step, regimes focused on
the establishment of legal and regulatory frameworks. This
task refers to the promulgation of an organic law and the
drafting of bylaws and operating regulations. While laws
can be in flux for years and subject to revision and repeal,
an important indicator of results is whether intergovern-
mental roles and responsibilities have been assigned ac-
cording to sensible economic and political proximity cri-
teria. Often they are not. In Pakistan, intralocal government
relations are still not clear between the tehsil, union, and
district levels, and no mechanism exists to deal with con-
flicts of law. The “economic constitution” step also requires
the establishment of a primary institutional coordination
and control mechanism at the central level (often at the
ministry of finance) that can plan, manage, and implement
the devolution program. Regulatory relationships between
provinces and districts are also unclear. One motive for
Comparative Decentralization Lessons 223
the Pakistani devolution was to circumvent the corrupt and
ineffective provincial governments and to give power and
funding to the new local tier.
Nevertheless, the overall approach of the National Re-
construction Bureau has been top-down planning, with an
emphasis on rules, laws, and regulations from the bureau
and the provincial levels. Very little emphasis has been
given to the needed local management flexibility to de-
liver the needed services. By contrast, the Philippine legal
and regulatory approach has been more facilitative and less
command and control. Conflicts of law have been recog-
nized and an institutional mechanism proposed to remedy
the problem. Indonesian laws have not assigned clear ex-
penditure and revenue roles for local governments. The
laws also excluded the provinces from the devolution of
authority. Of the three cases, the Philippines have given
most attention to the development of the legal and regula-
tory framework.
The third set of regime activities focuses on the resolu-
tion of local capacity weaknesses. Regimes contemplating
decentralization have to deal with this twice: initially as a
background issue, and later as an operational issue to be
remedied by technical assistance, training, and improved
incentives. All three regimes dealt with this issue by cor-
rectly defining it as a short-term issue that could be rem-
edied by a promise of support and by deploying higher-
tier staff to local units. The Philippines and Indonesia
required local units to pay for salaries out of fiscal trans-
fers. None of the programs required local civil services,
which created tension with central and provincial levels.
Only the Philippines has made significant strides in mod-
ern performance-based capacity building. Pakistan’s ca-
pacity building is largely in-house and derived from ar-
chaic colonial-era institutions and practices. The
Philippines has given the most attention to this issue from
initiation of the program in 1992. For example, it exempted
20 percent of the local development fund from central ear-
marks. While Indonesia deployed about two million staff
to local units, the government of Indonesia did not provide
them with any incentives for capacity building or the ap-
plication of skills to new local systems.
It was found that the fourth step followed by the re-
gimes was to establish facilitation networks to support and
sustain the reform. Without local support groups and citi-
zen participation, decentralization reform typically re-
mains unimplemented legislation. In Pakistan, a military
government with an initially short operating life initiated
the reform. It was directed by the National Reconstruc-
tion Bureau with little or no civil society or associational
backing. This was due to the rapid planning requirement,
the knowledge that the provinces would attempt to derail
the reform, the recognition that most districts were tech-
nically deficient and could not make sound evaluations,
224 Public Administration Review • March/April 2005, Vol. 65, No. 2
and the absence of any real civil society or independent
professional sector in Pakistan. The Local Government
Ordinance (SBNP 2001) established citizen community
boards with entitlements to 25 percent of local develop-
ment budgets. This institutional mechanism was an attempt
to break the lock on local politics by traditional elites and
parties and to create a nascent civil society organization
responsible for development projects. Civil society has
been repressed and is still weak in Pakistan. Pakistan held
local elections (for nazims, or mayors and councils) early
in the program (2000 and 2001), and this generated ex-
cessive local demands that threatened the capacity of new
districts to respond.
By contrast, the Philippines had a large civil society
structure to draw upon; the government of the Philippines
developed a broad supervisory group that included repre-
sentatives from civil society and professional groups. The
supervisory group included the Department of Interior and
Local Government, Department of Budget and Manage-
ment, Department of Finance, Civil Service Commission,
the Economic and Development Authority, and the Com-
mission on Audit. Associations included the Association
of Local Budget Officers. Indonesia relied on several local
government associations, including APPSI-provincial,
APEKSI-local and district, and APKASI-mayors. These
have been important supporters, but they have not served
as devolution program advocates so far. Part of this may
occur in the shakeout period which, unlike Pakistan and
Indonesia, the Philippines has already experienced.
In the fifth step, regimes focused on the establishment
of a monitoring system to track progress and to make course
corrections during implementation. In fact, only one coun-
try did this; the other two made largely symbolic moves to
create monitoring and evaluation systems. The National
Reconstruction Bureau in Pakistan planned a full-scale
implementation without pilot programs. It made no effort
to establish any monitoring system, perhaps out of the ex-
cessive hubris that it could simply dictate program effec-
tiveness. By contrast, in 1992 the Philippines established
the Rapid Field Appraisal system to generate needs assess-
ments and to provide feedback on implementation progress.
This was also consistent with its demand-driven, capacity-
building approach, which attempted to avoid failed sup-
ply-driven training approaches. Indonesia made no major
efforts in this area, other than the 1994–95 District Au-
tonomy Pilot Program, which was used to assess local ca-
pacity to execute newly devolved tasks prior to the pro-
gram. Negative conclusions generated by this program were
not utilized by the government of Indonesia in program
planning or implementation.
In the sixth activity, all three regimes recognized the
need to provide stable financing if local autonomy was to
become a reality. All three attempted to deal with the fi-
nancing issue, but varied widely in success. For current
services, Pakistan’s National Reconstruction Bureau and
Ministry of Finance agreed to pay the wage costs of the
devolution for the interim period—otherwise, local gov-
ernments could not pay the salaries of deployed staff or
their own. Salaries now account for about 85 percent of
district budgets (World Bank 2002a, 4). There are also in-
novative block grants from federal ministries (such as edu-
cation) to ensure funding for primary and secondary edu-
cation needs at the local level. But there is still no agreement
on the provision of stable annual amounts of funding or its
basis (that is, a performance formula) from the National
Finance Commission through the provincial finance com-
missions. For fiscal year 2003, the central government
transferred 2.5 percent of total general sales tax receipts to
the provinces (Abbasi 2002). But because of retained shares
and forecasting errors, this percentage does not indicate
the actual yield for local governments.
Indonesian central transfers provide 25 percent of local
revenues. No other major revenue sources are assigned and,
given the absence of any real tax base in most areas, local
own-source revenues are relatively high for the coverage
of local needs (25.4 percent, see table 1). The assignment
of revenues has not been based on the local cost of ser-
vices estimates (that is, a target level of expenditures),
which should have been done first. This means the center
retains control of revenues. In the Philippines, the early
internal revenue allotment, required by the 1987 Constitu-
tion, provided funds to local government units but excluded
the costs of the devolution. This deficiency was remedied
by the 1994 “cost of devolved functions” mechanism in
health (World Bank 1994). Work remains to be done in all
three countries on improving the stability and performance
basis of funding for local governments. The long gestation
period in the Philippines suggests that fiscal stability is a
medium-term issue requiring a longer shakeout period.
The seventh activity is restructuring and streamlining
local offices to prepare them for the performance of their
newly devolved tasks. The National Reconstruction Bu-
reau has given considerable thought to this in Pakistan,
and efforts have been made at the provincial level to stream-
line operations. Efforts at the district, tehsil, and union lev-
els have been more intermittent, which could impede ser-
vice delivery. The bureau has not provided methodological
options for functional review or reorganization, nor have
regulatory relationships between provincial departments
and corresponding local group offices (such as public
works) been worked out clearly. In the Philippines, local
government units were authorized in 1991 to establish their
own structures consistent with local service delivery needs;
in 1992 the Civil Service Commission recommended a local
government unit structure, and the Department of Interior
and Local Government established an anti-red-tape pro-
gram. Indonesia has not forcefully attempted to restruc-
ture local offices consistent with decentralization require-
ments. Thus, the Philippines began early to improve local
government unit performance and has achieved the most
in this area. All three regimes recognize that local institu-
tional reform will require a medium- to long-term effort.
The eighth and final step consists of efforts to shift plan-
ning and budgeting for public-sector activities from inputs
to outputs and outcomes. This is somewhat surprising be-
cause one would expect results budgeting to be first, as
core systems such as transfers and development projects
depend on their information. Instead, all regimes calcu-
lated that existing information could be used for results
purposes, for instance, line items to control operations and
maintenance expenditures and to gauge sufficiency for pres-
ervation of capital stocks. As results-oriented budgeting
requires improvements in analytical skills and the genera-
tion of performance reporting information, it is more of a
medium-term activity, and hence last on the list of regime
priorities. In its short program history, Pakistan has done
much in this area at the provincial level, and this serves as
a model for local reform. At the local level, efforts sup-
ported by the Asian Development Bank to develop perfor-
mance systems have been constrained by the need to en-
sure consistency with past forms, accounting practices,
manuals, and administrative practices. There are no local
professional pressure groups advocating changes here (the
civil society constraint). The lead agency for reform, the
National Reconstruction Bureau, is hampered by inexpe-
rience in this area, together with a mostly consultant staff
and top-down chain of command. The Philippine program
utilized the Association of Local Budget Officers and other
professional associations to change local practices and to
upgrade analytical skills. The Philippine central govern-
ment had substantial experience at the central level in per-
formance and program budgeting. Despite an emphasis on
local borrowing (considered sophisticated by most), Indo-
nesia has not yet focused on performance reporting and
budgeting.
Differences
Several conclusions can be drawn from the differences in
program implementation. The differences appeared less in
the sequence of activities than in their actual performance.
As indicated in table 2, seven differences can be noted in the
performance of technical activities at the organizational
framework and implementation strategy levels.
First, the supervisory structure for decentralization var-
ied among the three cases. The Philippines began with a
broad-based structure that included multiple representa-
tive interests. This extended to the use of civil society in-
stitutions for feedback and guidance on the progress of
the reform. By contrast, the supervisory structure of the
Comparative Decentralization Lessons 225
 Table 2 Differences in Decentralization Implementation cluded few international examples and did not solicit
Component Pakistan Philippines Indonesia international experience—despite the intent of the
Organizational Asian Development Bank’s Fiscal Decentralization
framework Technical Assistance project (2001–02). Pakistan as-
Supervisory structure/ Top-down Broad-based Less narrow
civil society feedback and narrow
signed roles to districts but ignored lower-tier inter-
Legal/regulatory Few comparative Comparative Comparative governmental relations, and it is still uncertain how
framework inputs inputs inputs to proceed with provincial–local relations. Both the
Capacity-building Some emphasis Strong emphasis Strong emphasis
Philippines and Indonesia have relied heavily on in-
Monitoring and No Yes No
evaluation system ternational and comparative local legal experience to
Implementation draft and modify their legal frameworks. As a result,
Local revenue Weak Strong-use of Weak the institutional base of the latter two programs is
sufficiency fiscal incentives
Restructure local Marginal efforts Some efforts Marginal efforts stronger than in Pakistan.
offices Third, regimes that wish to sustain their decen-
Performance Superficial Strong emphasis Some interest tralization reforms concentrate heavily on capacity
management interest
and budgeting building. The Philippines began early to provide train-
ing through a variety of institutions, including uni-
Pakistan reform has been limited to the military regime’s versities, nongovernmental organizations, and private
client institution, the National Reconstruction Bureau, firms. Indonesia also stresses capacity building and is
which represents few interests and is staffed by many con- strongly supported in this by funds from the U.S. Agency
sultants in a loose accountability structure. Pakistan has a for International Development. However, Indonesia trans-
weak civil society network; the reform was intended to ferred about two million staff without prior capacity-build-
circumvent existing political parties and provincial authori- ing support. Pakistan has responded more slowly, restrict-
ties, which the military viewed as opponents of the re- ing training to the existing colonial-based institutions,
form. As noted, the Local Government Ordinance autho- which are known more for their legal focus than for man-
rized a new set of civil society institutions for development agement innovation and technical analysis. The Philippine
projects, called citizen community boards. There is still government is transferring people and positions to districts
fear these boards may entrench local moneyed interests but with little prior training other than from their provin-
rather than empower the poor, because it is the rich who cial offices. The Asian Development Bank will provide
will have time to develop the technical expertise to attract support for training and capacity building. But it appears
district council funds (World Bank 2002b, 23). As ex- that much of this support will be locally driven and may
pected, citizen community boards have not yet become not be consistent with international best practices.
operational and are experiencing problems in competition The final key element of the organizational framework
with other locally powerful groups. The scope of the In- for decentralization is monitoring and evaluation. This is
donesian supervisory structure falls between the other two the fourth area of major difference in technical performance
programs—some representation at the top (the Office of among the three programs. The central supervisory insti-
Decentralized Local Government), but more is needed tution (or responsibility center) needs to establish a func-
from civil society organizations such as the professional tioning monitoring and evaluation system to provide feed-
municipal organizations APEKSI and APKASI. It is clear back on the performance and progress of the reform. This
that, after the establishment of macroeconomic control, information should be used to make course corrections in
all three regimes made efforts to establish supervisory in- the program and for capacity building to develop local abili-
stitutions, but each varied in its emphasis on representa- ties for institutional and policy analysis. To date, Pakistan
tion and the need for societal feedback. has not established a monitoring and evaluation system,
Second, as indicated in table 2, decisions of supervisory nor has the Indonesian government. The Asia Foundation
institutions must be guided by sensible laws relating to tax, supported a three-year effort that began in 2002 called the
budget, debt, participation in governance, and the assign- Indonesia Rapid Decentralization Appraisal, but this ap-
ment of functional roles. Decentralization laws must be in- praisal is external and not linked to the Center for Local
formed by a full understanding of what can go wrong in Government Innovation. Only the Philippines has recog-
public and municipal administration, as well as how to pro- nized the importance of this dynamic learning element to
vide speedy remedies for conflicts with other laws and regu- the success of the devolution.
lations. Many laws have been written by generalists from a Important performance differences were also noted at
top-down planning perspective that contain few insights the implementation level. Devolution of authority under
on the need to deliver local services. In the development of any circumstances requires fiscal support to achieve local
the Local Government Ordinance, the Pakistani regime in- autonomy. This is both a framework and an implementa-

226 Public Administration Review • March/April 2005, Vol. 65, No. 2

tion issue. Funding must be provided for both current ser-
vices and for capital and development projects. Funding
normally takes the form of transfers and can include per-
formance conditions in exchange for local program dis-
cretion (block grants). It may also take the form of author-
ity to collect and use fees and taxes—broadening local tax
bases. All three countries have recognized the importance
of providing not only funds, but also authority to mobilize
local revenue sources to reduce dependence on central
transfers. Local funding also needs to be linked to the ac-
tual costs of services rather than simple tallies of previous
budget expenditures unrelated to service requirements.
Pakistan has attempted to provide revenues, but has had to
deal with provincial reluctance to part with revenue au-
thority over districts. The provincial finance award still has
not been approved, jeopardizing local fiscal stability. The
government of the Philippines supports local fiscal au-
tonomy through local salary coverage and block sectoral
grants. This leaves the problem of covering local services
with very weak local tax bases (except in larger cities).
As noted, Pakistan developed citizen community boards
with access to dedicated funds for spending on local works
and generation of wider political interest in proposing
needed projects. The citizen community board mechanism
has not been fully implemented. Pakistan has also consid-
ered methodologies for estimation of service costs, but
these have not been implemented either at the local level.
Thus, the bulk of local funds are still derived from central
transfers (National Finance Commission awards) based
on population, and financing is largely unrelated to ser-
vice requirements.
The Philippines initially made a mistake in not cover-
ing local salaries and devolution costs through the internal
revenue allotment. This caused a major political backlash
against the reform. Since 1994, a new grant–loan link
framework has provided strong fiscal support for local
governments. The Philippines also provides fiscal incen-
tives in the form of a 20 percent addition to the develop-
ment fund for good performance. Indonesia earmarks 25
percent of central transfers for local units, but it is still
unrelated to local needs or costs of services. The relation-
ship between loans and grants is not coordinated, with per-
verse results such as poor cities borrowing and rich cities
relying on grants. Fiscal sufficiency is critical and takes a
long time to work out institutionally and politically. The
Philippines required four to five years to do this.
Decentralization is also a matter of local governance.
The quality of governance will be affected by internal or-
ganizational efficiency. Structures and systems need to exist
that develop policies implemented by managers with suf-
ficient resources and authority. Political and administra-
tive relationships, especially between elected or appointed
mayors, councils, and city departments need to be clari-
fied and institutionalized. Procedures for citizen inputs and
access to permits, licenses, and other documents need to
be transparent and efficient to prevent delays and corrup-
tion opportunities. All three countries recognized early on
that capacity and structure problems existed at the local
levels, which could derail devolution. In Pakistan, efforts
have been made through the provincial local government
departments to reorganize and restructure operations and
to transfer those models to districts, tehsils, and unions
through technical assistance.
On the other hand, there has been little recognition of
the complexity of this process or the need for a formal
methodology (such as an organizational efficiency review
or process reengineering) other than political logic. Re-
sults so far have been variable. In Indonesia, the central
government is implementing civil service reform and
slowly transferring reforms to local governments. The
Philippines has adopted anti-red-tape measures and taken
steps to reform local governments. The difference is that
the latter has permitted local units to reform themselves
consistent with Civil Service Commission guidelines.
Pakistan and Indonesia have been more insistent on a
cookie-cutter approach, that is, a common model provided
by provincial or central government planners. The Phil-
ippine approach has been more innovative and seems
likely to produce successes that can be replicated in other
local governments.
Finally, effective devolution requires measurement and
analysis of results. Funds should be allocated on the basis
of performance signals provided by the budgeting and fi-
nancial management system. Information on progress in
capacity building, local financing, service results, devel-
opment projects, and the overall devolution reform itself
is required for management and policy making. Perfor-
mance-monitoring systems and the analytical skills to op-
erate them are required. The most common means of inte-
grating management and fiscal performance information
is through a performance-based budgeting system. This
should be consistent with the national chart of accounts,
but based on a flexible system to measure outputs and out-
comes. As is known, many budget formats and service
measures are available, as are means to achieve overall
objectives. While the legal basis for program and perfor-
mance budgeting is included in Pakistan’s Local Govern-
ment Ordinance, its implementation has been impeded by
an emphasis on prior legal constraints and systems. Suc-
cessful models in Punjab province have not yet been fol-
lowed elsewhere. Indonesia has shown less interest in per-
formance-oriented budgeting than in the establishment of
borrowing systems to finance local infrastructure. By con-
trast, the Philippines has a long history with all forms of
performance or results budgeting (zero-based, performance,
and program budgeting) and continues to strengthen these
Comparative Decentralization Lessons 227
systems at the central and local levels through associations
such as the Association of Local Budget Officers.
Findings and Policy Lessons
Two findings are useful for regimes that are contem-
plating devolution or find themselves in the midst of imple-
mentation. First, regimes should follow the framework
summarized in figure 1, and realistically assess the levels
of background support and technical capacity and cultural-
institutional constraint. On the basis of these assessments,
regimes should decide whether to proceed with plans or
modify ongoing devolution programs. Regimes can respond
to perceived gaps in background support and technical ca-
pacity in the short run if they believe they can allocate re-
sources to them quickly and effectively (for instance,
through the transfer of central or provincial personnel to
local units). Because support and minimal local capacity
either exists or it does not, these are really short-term is-
sues. Regimes also need to assess whether cultural-insti-
tutional and civil society constraints arise from temporary
repression or total absence. In most cases, values and in-
stitutions have been repressed, and gaps can be dealt with
through modification of incentives and training/technical
assistance in the short term. The problem is often that re-
gimes intending to implement devolution do not provide
enough support (such as disorganized supervisory institu-
tions and inattention to the need for new kinds of capacity
building), and this creates problems for implementation.
If regimes believe they can (1) give sustained public fiscal
and political support to the program, (2) increase the ca-
pacity of local decision makers, (3) modify those cultural
constraints to modern systems requirements, and (4)
strengthen institutions sufficiently, they should proceed
with decentralization and move to the more immediate is-
sue of technical design and sequencing. In all three cases,
the regimes proceeded to that stage.
Second, it was found that major differences in technical
design and sequencing affect program success. The three
countries followed similar sequencing, but efforts varied
within each set of activities. The most advanced (more than
10 years experience) and most successful decentralization
program of the three was the Philippines. The Philippines
differed from the other two cases in the performance of
seven activities (see table 2). The only area in which all
three cases followed similar practice was in the deploy-
ment of personnel to lower-tier governments from higher
tiers. Even within this category, the three differed in provi-
sion of capacity-building incentives and salary financing
for newly deployed staff.
Five of the seven areas appear to be immediately im-
portant for decentralization success. For example, only the
Philippines stressed broad and responsive supervisory in-
228 Public Administration Review • March/April 2005, Vol. 65, No. 2
stitutions. It did not do so initially, but learned from expe-
rience. The other two countries did not follow the Philip-
pine example despite its importance. All three countries
recognized the importance of international and compara-
tive inputs into local government ordinance development.
But only Indonesia and the Philippines included this in
practice, and the latter more so than the former. It is criti-
cal that regimes review and absorb lessons learned from
regionally similar programs. To proceed on the premise
that program conditions are culturally and politically dis-
tinct is a high-risk strategy. This research revealed many
similarities and differences in only three regional programs,
and regimes ignore such conclusions at their peril.
As part of the organizational framework for devolution,
all three regimes recognized the importance of capacity
building. Pakistan has had a harder time severing its links
with ineffective and hidebound state training institutions.
The Philippines and Indonesia have changed their institu-
tions and solicited international donor support with sub-
stantial success. At the same time, only the Philippines has
recognized the importance of monitoring and evaluation
systems to the success of devolution. Despite technical as-
sistance recommendations in both countries, this is still a
major gap in the Pakistan program. Indonesia is beginning
to work with the Asia Foundation on a devolution monitor-
ing and evaluation system that will link into the Office of
Decentralized Local Government’s Center for Local Gov-
ernment Innovation. All three countries recognized the im-
portance of local fiscal autonomy, but they also had to rec-
oncile mixed political interests in mandating former
central–provincial responsibilities to local units with tech-
nical needs for local units to be financially autonomous for
program success. Provision of sufficient grants, loans, and
tax authority to local units in federal systems requires top-
level support and strong supervisory institutions to push
through the reforms. More fiscal support from the center is
required in both Indonesia and Pakistan.
In two other technical design and sequencing areas, the
Philippines adopted different approaches or priorities.
These have been less immediately important for program
success. For example, it is important for devolution suc-
cess to restructure local government offices and systems
and to adopt performance budgeting and management sys-
tems. While the Philippine program focused to a greater
extent than the other two cases on these components, it is
apparent they can be deferred in the medium term without
serious jeopardy to the program.
In conclusion, based on the three-case Asian compari-
son, it can be said that devolution programs that follow the
performance path of the Philippines will be more success-
ful. While all regimes must meet the common requirement
of initial macroeconomic stability to begin decentraliza-
tion, subsequently the Philippine program was imple-
mented differently in seven areas compared to Pakistan
and Indonesia. It can be concluded that all regimes need to
respond to potential gaps in support and deal with cultural
constraints to modern systems of administration and elec-
toral representation. Regimes must respond to local op-
portunities by building on existing cultural practices and
using them as support mechanisms for the more radical
institutional, fiscal, managerial, and political changes that
may be required for effective decentralization. Regimes
that effectively respond to these shorter-term issues, then,
need to follow the path of the Philippines, with (1) a broad
supervisory institutional structure, (2) substantial interna-
tional inputs into the development of the legal and regula-
tory framework, (3) innovative capacity-building exercises
and institutions, (4) strong interest in monitoring and evalu-
ation of the devolution program, (5) provision of sufficient
local fiscal autonomy, (6) efforts to streamline local gov-
ernment operations, and (7) efforts to replace input bud-
geting and legal management with systems driven by per-
formance incentives and targets. Regimes that focus on
these areas in sequence are likely to be more successful
than those that do not, illustrated by Pakistan and Indone-
sia at present.
More research needs to be done on the determinants of
effective decentralization implementation. This three-stage
framework offers a modest start. In the future, to provide
applied policy guidance to regimes contemplating design
and implementation, research should focus on differences
in the performance of technical activities by similar coun-
tries and programs. Specifically, research questions should
ask, what factors are associated with variation in perfor-
mance of these activities? Armed with more precise data
and further lessons learned, it should then be possible to
measure the comparative program impact and link this to
differences in performance of technical activities. With this
applied information, regimes should have a better assess-
ment of the potential risks of their decentralization deci-
sions and how to minimize them.
Acknowledgments
The author thanks Rachel Quero, director of DAI-Philippines
in Manila, for her support and provision of materials on the de-
centralization program there. An earlier version of this article
was presented at the Association for Budgeting and Financial
Management conference in Kansas City, MO, October 10–12,
2002.
The opinions expressed in this article do not necessarily re-
flect those of the Open Society Institute or the Local Govern-
ment and Public Service Reform Initiative.
Notes
1. Conversely, there is a case against fiscal decentralization (or
for fiscal centralization), and it is stronger in transitional and
developing societies than in industrial countries. It is said
that centralization favors stabilization, economic growth, and
regional equity (see Prud’homme 1994; Guess, Loehr, and
Martinez 1997, 1).
2. Differences in decentralization refer to how well the activi-
ties are performed, the sequence in which they are performed,
and overall program results. Here, differences can be noted
in how well the technical activities were performed. The se-
quence of activity performance was similar in all three cases.
Data on overall program results are not yet available.
3. As the decentralization program advances and statistics are
reported more systematically, the level of local own-source
revenues should increase. The new district tier has the power
to set tax rates and bases of such dedicated taxes as the urban
immovable property tax. Districts also receive a dedicated
annual portion of the sales tax to increase local fiscal au-
tonomy. The National Reconstruction Bureau and Ministry
of Finance have largely agreed upon the concept of a divis-
ible pool of provincial resources (provincial finance award)
to be shared with the districts on the basis of needs and per-
formance. To a large extent, districts can establish their own
current and development budget priorities with inputs from
newly created civil society organizations for development
projects called citizen community boards.
4. The relationship between regime types and the level of sup-
port for decentralization is not explored here. Manor (1999)
notes that, paradoxically, authoritarian regimes may support
decentralization to increase their base of support.
5. In Ecuador, exchanging tighter reporting requirements on
outlays and adding in performance measures for provision of
greater management authority to transfer and reprogram funds
during the year was viewed as a positive incentive by finance
ministry officials. This was accomplished by the incremental
reallocation of rewards and requirements that already existed
within the budget-execution system. The small change in what
was viewed as a hopelessly centralist system produced im-
provements in budget management (Guess 1993).
6. On the other hand, the “wrong” kind of intermediary organi-
zations may exist. The three regimes studied are gambling
that in the medium-term, decentralization will reduce sup-
port for unsupportive, negative intermediary groups that still
exist, to some extent, in each country. Warlords and remnants
of al-Qaeda in the Pakistani tribal areas are unlikely to en-
courage centrally sponsored government decentralization
programs that could deprive them of indigenous support.
Disruption of established corruption networks by the devo-
lution of formal governmental control systems (such as in-
ternal audit) in Indonesia met the same resistance. Regimes
recognize the threat of such organizations to sound gover-
nance and the rule of law and attempt to reduce their influ-
ence by political co-option strategies. The appropriate mix
of policies to co-opt or modify the behavior of negative groups
Comparative Decentralization Lessons 229
 (that is, force and incentives) must be arrived at by each re-
gime on the basis of its own strategic and operational consid-
erations.
7. The relevant Indonesian local government associations can
be identified by their Indonesian acronyms: APPSI (provin-
cial), APEKSI (local and district) and APKASI (mayors).
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