Poverty, Corruption, and Limited Management Capacity Are Big Challenges in Post-Tsunami Aceh

“Aceh Expenditure Analysis for 2006,” a joint study undertaken by the World Bank and leading universities in Aceh, found that despite a 6-fold increase in revenues since 1999, Aceh remains Indonesia’s fourth-poorest province. Aceh’s revenues rose from 4.6 trillion Rupiah in 1999 to Rp. 28.2 trillion ($3.1 billion) in 2006. Moves toward decentralization and special autonomy, as well as the influx of billions of dollars in post-tsunami aid, account for the rise. The creation of a special autonomy fund under the new Law on Aceh Governance is expected to further increase allocations of funds to Aceh in coming years. Yet increased budgets have yet to translate into concrete socio-economic improvements. In 2004, an estimated 1.2 million people were living below the poverty line of Rp. 130,000 ($14) per capita per month. At 28.5 percent of the population, this is double the rate of the mid-1990s. Including those rendered vulnerable by the tsunami’s devastation, the poverty rate is now above 35 percent. Aid pouring into Aceh has proved somewhat of a double-edged sword. While needed for rebuilding, it has also triggered high inflation—reaching 41 percent in Banda Aceh in 2005, thus undercutting the purchasing power of many. Aceh also suffers from very poor public services. Local governments have devoted a growing amount of money to building bureaucracies, but health, education, and infrastructure needs remain largely unmet. Even though Aceh has nominally the highest per-capita education expenditures in Indonesia, more than half of all villages in Aceh do not have a primary school. A study for the World Food Programme released in September 2006 found that primary school children suffer from inadequate nutrition, health care, and sub-par sanitation facilities. In combination with poor hygiene, the result is widespread parasitic infections, stunted physical growth, and retarded intellectual development. The rise in available financial resources has not been matched by an improvement in local government management capacities. Aceh needs both a more appropriate allocation of resources and better management of these resources. A study by environmental watchdog group Greenomics pointed to both mismanagement and corrupt practices in the reconstruction effort, and Greenomics recommends transferring rebuilding authority to the Aceh provincial administration after the December 2006 elections. A growing number of independent studies, including reports by Indonesian Corruption Watch and Aceh-based Anti-Corruption Movement, have documented that reconstruction is hampered by corruption. Even so, reconstruction and accountability in Aceh compares favorably with that of post-Katrina New Orleans. The head of the government’s Rehabilitation and Reconstruction Agency BRR, Kuntoro Mangkusubroto, is known for his incorruptibility. He has insisted on transparent bidding and tendering processes—even though to some extent the inevitable cost is a slower pace of reconstruction. Reconstruction has widely been criticized as slow, but the pace appears to have picked up since late 2005. Each month, 3,500-5,000 new houses are being built now, yet the pace needs to accelerate further to meet reconstruction targets during 2006 and 2007. Up to 20,000 families displaced by the tsunami still remained in tents and another 25,000-30,000 in temporary barracks in mid-2006. Beyond a simple return to the pre-tsunami economy, a restructuring is needed for sustainable livelihoods. Oil and gas contributes 40 percent to Aceh’s GDP, but the sector offers less than 10 percent of all employment and most of the proceeds have historically gone to Jakarta. Although a greater share of oil and gas revenues is now to remain in the province as per the 2005 peace agreement, the overall income from fossil fuels is expected to decline in coming years. There is potential for expanding modern farming and fishing with larger boats, but a key question is whether the benefits will be broadly enough distributed. To retain a larger share of the value added from processing its ample agricultural and other natural resources, Aceh will need to build manufacturing facilities and pursue skill building and vocational training.

Reconstruction Needs and Accomplishments (as of April 2006). Source: World Bank

Damaged / NeededRebuilt by April 2006Percent of Need Fulfilled
Health Facilities12711389
Fishing Boats7,0006,16088
Fish Ponds20,0007,11136
Rice Fields60,00037,92663