Hand-in-hand with the rapid urbanisation of Indonesia over recent decades, the number of regions officially designated as cities (kota, sometimes also translated as ‘municipalities’) has risen sharply. At the outset of the post- Suharto period, in 1998, there were only 59 kota in Indonesia; by 2023 there were 93 autonomous kota. The number of rural districts or regencies (kabupaten), meanwhile, increased from 234 to 415 in the same period. However, despite the different names, the central government generally treats kota and kabupaten as if they are the same. For example, it applies the same policies concerning local governance and public services, such as minimum service standards, performance reporting and evaluation methods, accountability systems and complaints handling management, to both kota and kabupaten. Likewise, the government applies fiscal policies and transfer formulas, which determine the size of local government budgets, on the basis of various demographic and development indicators without differentiating whether a district is a kota or a kabupaten.

In this chapter, we examine how district governments in urban Indonesia are performing in terms of delivering development and public service outcomes, in the context of the budgetary resources available to them. Government spending at this level is important. Since the introduction of decentralisation in 1999, districts budgets have accounted for almost one-third of overall spending, and are especially important in the health and education sectors, where they contribute more than half of spending (World Bank 2020: 27).

Analysts have had longstanding concerns about district budgets, development and public services in regional Indonesia, including the low contributions of own-source revenue to district budgets, high personnel spending and low capital expenditures, each of which has been seen as a major inhibitor of economic and social development in the regions (see, for example, Lewis and Smoke 2017; Patunru and Rahman 2014). Lewis (2017) found that district spending has positive impacts on public services. He argues that good financial management performance (which presumably primarily means less corrupt management), although moderated by a district's dependence on intergovernmental transfers, has a positive impact on public service access. More recently, USAID ERAT (2022: 6) identified that decentralisation has improved access to public services and reduced interdistrict disparity.