Autonomy and contracting : a case study on agencification in Indonesia

Abstract

The multiple crises in Indonesia in 1997 resulted in the fall of Suharto’s Orde Baru (New Order) and the acceptance of assistance from multilateral bodies such as the International Monetary Fund (IMF) and the World Bank. This assistance, to some extent, brought various reform initiatives rooted in pro-market ideas, including agencification. Since 1997, the Indonesian government has introduced at least two new agency types, namely Lembaga Non-Struktural or non-structural agency (NSA) and Badan Layanan Umum or public service agency (PSA). Together with an agency type introduced earlier called Lembaga Pemerintah Non-Kementerian or non-ministerial agency (NMA), these agencies have proliferated and become alternatives for the government in mandating its functions to bodies that are more autonomous than the ministerial departments which are the backbone and common organisation type of the bureaucracy. Unlike NMAs and NSAs, which are regulated in the public service ecosystem and established based on general public administration regulations, PSA governance was established through public finance management reform and developed in the public service financial management ecosystem. The governance grants an extent of autonomy to the agencies and allows the use of private sector management techniques and approaches for the PSAs, including a performance contracting system. Although this has been implemented for some years, and attention to the system in Indonesia has been growing, the dynamics in performance contract setting and the impact of these arrangements on an agency’s trust from the autonomy granted have not been adequately discussed. This thesis aims to study the construction of the PSA performance contracting system as a control mechanism to balance a set of autonomy features granted to a group of semi-autonomous agencies: PSAs. To fulfil the research aim, this thesis investigates the PSA performance contracting system that has been arranged in response to the autonomy given to the PSAs. The discussions in this thesis can be categorised into three broad divisions: PSAs’ position among other types of public sector agencies in Indonesia in terms of autonomy; the institutional arrangement of the PSA performance contracting system, especially in terms of contract hardness; and the dynamics of dialogue and trust in the relational arrangement of the contracting system. Due to the restriction of a single research ii framework used to achieve the research aim, this thesis employs mixed methods approaches, combining document analysis and semi-structured interviews, for the three research divisions. Using a multicase study research strategy, the three research divisions merge into an integrative thesis framework. Filling gaps in the literature, this thesis contributes to knowledge in several ways, related to both the three different divisions of discussion and the overall concept of the thesis. Firstly, this thesis conceptualises the autonomy of the government agencies in Indonesia, especially based on the combination of two levels (high and low) of political autonomy and managerial autonomy. Secondly, this thesis contributes to the internal contract literature through the provision of a framework to investigate contract hardness based on the main New Public Management tenets, which are neglected by some authors who conceptualise contract hardness. Thirdly, the thesis contributes to the interorganisational trust literature by conceptualising the trust fulfilment of boundary spanners’ expectations with the inclusion of dialogue as a “container” in which expectations meet and trust can be developed. Lastly, as a whole, the thesis contributes to the conception of performance contracting within the public service in terms of balancing autonomy with control mechanisms. The thesis as a whole also contributes to practice. By providing a comprehensive examination of the practice of performance contracting coupled with granted autonomy, government and policy makers can review the balance between agency autonomy and control mechanisms. This directly affects contracting practice. This relates not only to the institutional arrangement of performance contracting, such as the hardness of the contract, but also its relational arrangements in terms of the fulfilment of expectations within the contracting practice. Furthermore, this thesis also hopes to contribute to the management of the dynamics of dialogue and trust between principal and agencies.

Date of Award	2021
Original language	English
Supervisor	Yogi VIDYATTAMA (Supervisor), Peter Graham (Supervisor) & Jesmin Islam (Supervisor)