Innovative Policy of Regional Development in Decentralized Indonesia

Innovative Policy of Regional Development in Decentralized Indonesia: Local Content Policy in Extractive Industries Governance, at District of Bojonegoro, Province of East Java, Indonesia Ermy Ardhyanti & Hasrul Hanif Key word: local content policy, decentralisation, Governance of extractive industry Classification system: O2 This paper aims to explain about how process of implementation of innovative policy introduced by a local government after Indonesian government introducing the excessive decentralisation since early 2000. Furthermore, this paper describe various problems and opportunities for implementing local content policy that enhance the social benefits of local economic development at Bojonegoro, one of resource abundance districts, after discovering and exploitation the oil and gas reserves. This paper actually put emphasizes on to what extent local government enhance local content policy that contributing for social benefit in decentralised political arrangement? The finding shows that there is the tension between central government and local government then emerges in implementation of local content policy. The central government identified this new policy will perhaps be burden of optimization of oil and gas production. Hence, it will threaten achievement of national targets. The converse came from local government when they think that they have strong authority to arrange oil and gas production activities. Furthermore, they cannot ignore or delay this policy due to social conflict management and minimising environmental damages and risks. There are also some lesson-learnt that can be reflected in implementation of local content policy in Bojonegoro, Indonesia. First, Local economy is not the central government domain. The authority transfer to local government in economic sector need to be expanded since economic activity in rich resources region usually is the domain of the major business group that has the capital and capability. This innovation aims to intervene the economic activity process so it could favour the region. Second, capacity building is needed. When local business groups involving within the joint operation model (partnership between local and non local businessmen) is expected, it should be more than sharing of capital. It also needs capacity building of local business group through transfer of knowledge, skill and capital. Third, It needs to increase of PDRB in service sector by localizing the flow of money in the region. In2011, Bojonegoro's PDRB at market price with oil and gas reached 25.110 Trillion. The challenge is to make the flow of money stays inside region of Bojonegoro.