The Implementation Gap: Financial Management Reform in Indonesia 2003-2010

In the mid-1990s, the Asian financial crisis provided a strong impetus to democratising reforms in Indonesia. A major component of reform was the drive towards more efficient, effective and accountable government, based on the principles of New Public Management (NPM) and associated financial management reform. So far, while some progress has been achieved, there remain considerable shortfalls in the implementation of change.On the basis of a literature review of NPM, financial management reform and implementation of public policy, this study investigates factors affecting implementation outcomes of the financial management reform in Indonesian Government institutions. This is an important research gap since research on NPM and financial management reform has tended to focus on policy design with less focus on how the reform is converted into action at organisational level. This study employs a multiple case study design using four cases of Indonesian Government institutions and gathered data through interviews with key informants from the four case study institutions.This thesis argues that the reasons for shortfall in the implementation of change lie in the fact that a uniform implementation strategy was employed by the Indonesian government. This strategy overlooked the varied nature of the problem, the lack of capacity and knowledge in financial management and the need for more effective political and bureaucratic leadership in the process. More fundamentally, it is argued that advanced financial and accounting reforms maynot represent a realistic reform emphasis for a developing country such as Indonesia, where governance capacity is limited. In transplanting the reforms, advocates overlooked the fact that successful implementation in western countries rested upon pre-existing practices of sound financial management and accountability, which were lacking in Indonesia. This resulted in an implementation gap that will take many years to surmount