Land Use Policy 21 (2004) 347–355

ARTICLE IN PRESS

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doi:10.1016/j.lan

Major issues in Indonesia’s urban land development

T. Firman*

Department of Regional and City Planning, Institute of Technology, Bandung, Jalan Ganesha 10, Bandung 40132, Indonesia

Received 13 December 2002; received in revised form 10 April 2003; accepted 24 April 2003

Abstract

This article addresses issues of urban land development in Indonesia, including urban land use; ownership and transfers; land

taxation; and land information systems. Until very recently, urban land-use planning in Indonesia was largely top-down in character

and neglected to include the public as a stakeholder. This article argues that the role of government in urban land-use development

needs to change at all levels and that the capacity of local government in land-use management needs to be strengthened. The

presence of private developers in urban development should be encouraged. Land development permits—as a means of urban

development control—while they may still be necessary should be granted primarily in relation to urban land-use plans (RUTR).

Land taxation instruments have not been effectively applied to control land utilisation in the cities. Data and information on land

affairs are lacking.

r 2004 Elsevier Ltd. All rights reserved.

Keywords: Urban land policy; Indonesia

Introduction

This article considers several key issues relating tourban land development in Indonesia. Although severalaspects of urban land policy reform in Indonesia havebeen examined previously (see Firman, 1998), this areaneeds to be revisited as the recent economic crisis andcurrent sociopolitical situation have greatly affectedurban socio-economic and physical conditions inIndonesia, including urban land use. This article aimsto offer an update on the situation of urban landdevelopment in Indonesia.With a population of over 206 million people in 2003,

Indonesia is one of the most highly populated countriesin the world, following China, India, and the UnitedStates. Urbanisation, defined as urban populationproportion of the total population, is growing rapidlythere. It had already reached 30 per cent and 42 per centin 1990 and 2000, respectively, and is expected to be 50per cent by 2010. Urbanisation has impacted signifi-cantly on spatial development in Indonesia, notably onurban land. For this reason an urban land developmentpolicy which is able to respond to rapid urbanisation isof extreme importance to Indonesia.

-250-4735; fax: +62-22-250-1263.

ss: tfirman@melsa.net.id (T. Firman).

front matter r 2004 Elsevier Ltd. All rights reserved.

dusepol.2003.04.002

Indonesia’s Basic Agrarian Law (Undang-UndangPokok Agraria—UUPA), promulgated in 1960, clearlystates that land has both social and functional values,and is therefore not a commodity that can be traded forprofit. At present there are three competing attitudestowards the UUPA (Faryadi, 2002). First, there arethose who consider UUPA as no longer relevant withinthe current political and socio-economic context. Thelaw is considered a hindrance to effective land marketfunctioning, and therefore there are those who think itshould be eliminated. Second, there are the ‘populists’.They would like to leave the UUPA as it is, since thislaw is essentially intended to protect poor agrarianhouseholds. Many of the populist group consider theUUPA as ‘too soft’ to deal with the recent trend ofcommoditisation of land and they call for its revision(Sumardjono, 2001). Third, are those who consider thatUUPA is still relevant in the current context provided itis reoriented and updated, so that it can keep up withpresent political and socio-economic conditions inIndonesia.The UUPA was developed with the intention of

addressing issues relating to rural land; understandablyit neglects urban land problems. However, since socio-economic conditions have changed greatly, urban landdevelopment is now an emerging issue that needs to beaddressed. It is therefore timely to now review and to

ARTICLE IN PRESST. Firman / Land Use Policy 21 (2004) 347–355348

amend the UUPA and its operational regulations bygiving more attention to urban land developmentproblems.There have been several policies and regulations

regarding the use of urban land in Indonesia, but theseare fragmented in terms of their objectives, orientationand institutions. Not surprisingly, these regulations andpolicies have been inefficient, inconsistent and some-times even in conflict with each another.This article addresses issues of urban land develop-

ment in Indonesia, including land use; ownership andtransfers; land taxation; and land information systems.The rest of the article is divided into four parts. Part 1will discuss urban land development policy in develop-ing countries to provide a theoretical background andcomparatives; part 2 will examine urban land develop-ment in Indonesian for the last two decades; part 3 willcritically discuss the need for urban land developmentpolicy; and part 4 offers some concluding remarks.

Theoretical context and a brief overview of urban land

development in developing countries

Urban land policy in general refers to the planningand implementation of the allocation, utilisation andcontrol of urban land to achieve efficiency and toimprove the equity of land market outcomes (Archer,1990, p. 3). Unclear urban land policy could result in theabuse of the legal system for the purposes of landspeculation. Urban land policy is also directed ataffecting the use of land, ownership and prices, and atcollecting revenue (Mattingly, 1993, pp. 106–117). In asimilar vein, Rakodi (1996) argues that state urban landdevelopment policy makes interventions with regard toseveral issues. These include tenure (property rights),land-use planning and regulations, land taxation as apotential source of government revenue, infrastructureprovision and development, and public sector partici-pation in land supply as well as land development(p. 1553).The broad problems of urban land development

policy in developing countries, include the following:the inappropriate use of land resources; inflexible andoverly detailed land regulatory and legal frameworks;over-centralised and poorly coordinated land manage-ment institutions; inappropriate land pricing and hightaxation; inadequate information about land; the lack ofsecure tenure; and, inadequate infrastructure capacity(Farvaque and McAuslan, 1992; Bernstein, 1994;McAuslan, 2000; see also Sivam, 2002). As Payne(2000) maintains, in developing countries the regulatoryframeworks relating to urban land are often a barrier tothe development of more equitable and efficient landmarkets (p. 1). Most developing countries also confrontthe problems of a lack of efficiency, equity, account-

ability and probity of the administrative systems inurban land development, as well as a reluctance toencourage the participation of the urban poor (Bern-stein, 1994, p. 28).The lack of security of land tenure could be a

hindrance to urban land markets’ effective functioning(Brennan, 1993; McAuslan, 2000). While legislating onland tenure could increase the supply of land in urbanareas, many cities in the developing world experiencedifficulties in doing so, especially with regard to costrecovery (pp. 78–79). However, as Doebele (1987)argues, this measure should be adopted with greatcaution as the formalisation of land tenure may possiblyend up with ‘upward filtration’: that is, the buying-up ofpoor households’ land by middle- and high-incomehouseholds and could also expose poor households toformal land taxation (p. 124, 437). According toMcAuslan (2000), the most important thing is not tolegalise land tenure, which could be time-consuming andcostly, but rather to enhance the security of tenure.In Kenya, public land management seems to have

favoured those who are politically, socially, andeconomically most powerful (Olima, 1997). In fact, theKenyan government has been extremely slow to actdecisively on issues of the deficiencies of and irregula-rities in public land allocation (p. 331). Meanwhile,Tanzania faces problems of slow progress in plannedland development, inequity and partiality in landadministration, as well as high levels of bureaucracy atall levels of the land development process, a prolifera-tion of unplanned areas, and the commoditisation ofland (Kironde, 1997, p. 99).Brennan (1993) maintains that market mechanisms

alone are unlikely to create an efficient urban landallocation, and therefore intervention is necessary withrespect to regulations, administration and planning toassist market mechanisms to function effectively (pp.77–78). Another reason offered for intervention inurban land-use policy is to cope with the socio-economicconsequences of land speculation and the decreasingaffordability of land for urban low-cost housing(Koppel, 1993, p. 23).For Doebele (1987) the key issue in urban land

development policy in developing countries is how toincrease the land supply accessible to low-income groupsand to make more effective use of substantial areas ofunder-used urban land (p. 77). There are three majorapproaches to increasing land supply. These include:direct public actions; joint public–private actions; andthe more efficient the use of existing land resources (pp.119–128). Public land banking systems—a processwhereby the land required for particular needs ispurchased well in advance of those needs (Devas,1983, p. 211)—should be established in the cities ofdeveloping countries to assist them to cope with thedifficulties of providing land for public facilities and

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infrastructure development, particularly for low-costhousing. These systems could be managed by thegovernment through state-owned companies and bythe local government through local government-ownedcompanies (see also Sumardjono, 2001).Land taxation could serve as an instrument to

administer land utilisation, including the process ofland conversion. Urban land taxation would alsopromote and encourage the effective utilisation of‘private land’ and assist the authorities to developpublic infrastructures, which in turn could enhanceurban development by the public and the private sector(see also Munro-Faure, 2000). According to Archer(1990) to ensure the tax will be adequate, efficient andequitable, the property tax charged on urban landshould be based on a realistic estimate of the marketvalue of land (p. 36). However, in most Asian countries,land taxation has been largely considered as aninstrument to raise revenues, rather than for landdevelopment control. Urban property taxes in Asiancountries are generally undervalued, and tax collectionis poor, as Menezes (1988) argues:

Almost all the [Asian] countries y have failed to usetaxation as an effective instrument of urban landpolicy. All local and municipal governments dependon the property tax as a major source of revenue, yetits potential is barely tapped (p. 295).

According to Dowall and Clarke (1993, p. 15) the lackof clear proof of land ownership in developing countrieswill impose substantial costs on the land market, sincewithout accurate ownership data, potential buyers willneed to investigate the property ownership prior todeciding whether to purchase the land. Obviouslypotential buyers do not want to get involved in landdisputes in the future. As Farvaque and McAuslan(1992) argue, good land registration, besides makingrecords for land market operations available, also helpsland markets to work and facilitate the conveyancingprocess and subsequently ensure the transparency of thetransactions (p. viii; see also Williamson, 2000).To formulate a good urban land policy in developing

countries, involves six general steps (Dowall and Clarke,1993): These include: (1) land market assessment(LMA), aimed at providing an accurate up-to-datedata base on the operation of the urban land market;(2) decentralisation of land management authority;(3) deregulation to simplify land use and developmentcontrol and to shorten the approval cycle; (4) curtailingpublic land development authority, which may includerestructuring large organisations, privatisation, or liqui-dation of companies; (5) the improvement of efficiencyin land market operations; and (6) the provision offinancial, institutional and spatial structures for instal-ling infrastructural networks (pp. 35–41). Overall, asKironde (1997) proposes, there is a need for a simplified,

efficient, imaginative, flexible, and honest administrativemachinery to implement an urban land policy success-fully (p. 115).

Urban land development in Indonesia

Recent urban development in Indonesia has beencharacterised by rapid changes in the use of land in itsurban centres, as well as by the conversion of primeagricultural lands to residential areas and other urbanland use on the peripheries. These processes can beclearly observed in large cities such as Jabotabek(Jakarta Metropolitan Area), Surabaya and Bandung(Firman, 2000; see also Goldblum and Wong, 2000).During the economic boom of the 1980s and 1990s,

many once-residential areas, especially slum areas(‘kawasan kumuh’) in the city centre, were convertedinto hotels, luxury high-rise apartments and shoppingmalls. In Jakarta, for example, no less than 600 newbuildings valued at over US$5 million were constructedduring the period 1980–1992 (Dorleans, 1994). Thisdevelopment has raised the property businesses in largecities, which in turn has resulted in rocketing land-pricesin the Central Business District (CBD). Meanwhile, theprime agricultural land on the outskirts of Jakarta,Surabaya and Bandung has very quickly been trans-formed into new residential areas, industrial estates, golfcourses, and tourist resorts. As a consequence, con-siderable areas of land on the outskirts of the large citieshave been acquired by developers and land speculatorswho play an important role in supplying the land forhousing. This, in turn, has led to difficulties in theimplementation of land subdivision.Developers who intend to acquire and assemble land

for subdivision projects are required to obtain landdevelopment permits (ijin lokasi) and land purchasepermits. Archer (1993) maintains that there are fivebasic functions of land permit systems in urbandevelopment. These are: (1) guiding the location of the(formal) private land and building development pro-jects; (2) coordinating the government and the formalprivate sector development activities; (3) facilitatingland assembly for the development projects; (4) facil-itating land assembly for large-scale developmentprojects, including new town and industrial estateprojects; and (5) attaching appropriate project develop-ment conditions to the permits for the land acquisitionfor the proposed development projects (p. 19). Inessence, the location permit is intended to help controland guide urban land-use development. However, inIndonesia it has been misused for the justification of theprovision of large areas of land for developers, many ofwhom have little capacity to develop the acquiredland and have no intention to develop the entire areathe permit covers (Firman, 2000). This situation is

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exacerbated by the way in which the authorities treat thedevelopment permits as an instrument to collect fees.This resulted in the location permits process becomingcostly as well as often unnecessarily lengthy, not tomention the alleged corruption and bribery involved inthis practice.During the 1980s and 1990s, the national economic

development policy has pushed the BKPM (InvestmentCoordinating Agency) to grant investment permits toboth foreign and domestic investors in order to reachthe national investment targets. During this period,economic development in Indonesia has resulted in asignificant increase in the demand for industrial land. Infact, the Indonesian government has allowed privatecompanies to privately manage industrial estates.Investors have been greatly assisted in obtaining landfor business purposes, with measures such as even therelaxation of regulations for location and land develop-ment permits. This has resulted in rapid land conversionin the fringe areas of large cities where most industrialactivities take place.In the past the land-development permit system in

Indonesia was a top-down process which essentiallyreserved land almost exclusively for the approveddevelopers. The system granted monopoly rights to thedevelopers to purchase land from landowners at lowprices. This system neglected the rights of the land-owners. Consequently, as Ferguson and Hoffman (1993)argue, the land development permit system in Indonesiaof the 1980s and 1990s affected land prices in tworespects: first, it increased land prices for the end-users;second, the system resulted in reduced prices being paidby those developers who were authorised to acquireland. In short, this land development permit grantingprocess resulted in the concentration of ‘ownership’ ofurban land in the hands of a few developers as well as ininefficient land utilisation. This, in turn, has triggeredthe speculative trading of land.The prevailing mechanism of land transfers has given

developers excessive authority, while land-owners haveno options regarding who they sell their land to. Even ifthere are certain mechanisms for negotiating the sellingprice, in most cases land-owners are in weak position.For example, 20 out of 23 (87%) of land acquisitioncases in Surabaya during 1992 and 1993 were forcedsales, without the consent of the land owners (Suyanto,1996, p. 47). In many cases of land acquisition in largecities, the land-owners are not satisfied with thecompensation (ganti rugi) paid by the developers, as itis far below the prevailing land prices. Moreover,compensation is offered only for the lost assets,such as land, buildings, utilities, as well as plantsgrowing on the land. However, this does not includeloss of income and other disadvantages experiencedby land-owners resulting from unfair land transferpractices.

Land acquisition is often a lengthy process, and canbe costly. Struyk et al. (1990) found that transfers ofland added as much as 10–30% to the expenses for landacquisition in West Java. On average, it also took morethan 30 months for developers to get land title issuance.Land acquisition for the purpose of public infra-

structure development is administered under the Pre-sidential Decree (Keppres) 55/1993, which clearly statesthat land acquisition should be done through directdeliberation (‘musyawarah’) and achievement of con-sensus (‘mufakat’), and on a voluntary basis between theinvolved parties (see Sumardjono, 2001). Moreover,land transfers for the benefit of the public interests,including road development, hospitals, schools, primaryhealth care, etc., should entail the involvement of theland-owners and their associates, the legislative council(DPRD) at a provincial, district, or municipal level, inboth the utilisation of land to serve public interests andthe valuation of the compensation offered. The decreealso emphasises that the compensation of land transfersshould be capable, at the very least, of improvingthe socio-economic conditions of the respective land-owners.Recently, the Indonesian government has reformed

the land development permit (ijin lokasi). From 1999,developers were allowed only to acquire land forindustrial estates and housing projects that do notexceed 400 ha of land in one province, and maximum of4000 ha in the whole of Indonesia. The permit may berenewed for another year if land acquisition has reachedmore than half of the planned quantity (Firman, 2000;Soemarno, 2002).Conversion of agricultural land to urban land areas in

Indonesia is largely uncontrolled. This has led to a ‘landbusiness undertaking’, whereby developers become rentseekers and land-capital-gain speculators, resulting inincreases in land prices (see also Leaf, 1991). In otherwords, land has been treated as a tradable commodity.Many of the land areas that have been acquired for longperiods of time have not been developed, and thus thereare sizeable neglected areas of land. At the same time,land taxation has not been effectively employed tomanage and control land utilisation. Instead, there is atendency for land taxation, land development permits,and building permits in Indonesia to be considered asinstruments to raise revenue, instead of as instrumentsfor land-use development control.Land conversion in Indonesia occurs on a very large

scale, involving thousands of hectares of irrigated andprime agricultural land. There is some concern that itmay begin to affect the production of foodstuffssignificantly, as well as squandering investments inirrigation on agricultural farmlands, notably the paddyfields (sawah). The Indonesian Survey of Agricultureconducted by the Central Board of Statistics shows thatin Java more than 1 million ha of paddy fields, i.e.

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approximately 30% of the total area of paddy fields onthe island, was converted over the period 1981–1999,whereas only about 520,000 ha of new paddy field areaswere developed. In fact, land conversion resulted in aloss of almost 480,000 ha of paddy field over the period.Surprisingly, however, this paddy field loss did not causepaddy production to drop, due to an increase in theproductivity of newly opened paddy fields (Kompas, 16October, 2002).1 Even worse, conversion has not onlytaken place in the prime agricultural land of the urbanfringe, but has also occurred on land designated asconservation areas, such as Northern Bandung andJalur Puncak (Puncak Strip) near Jakarta. This couldresult in a detrimental impacts on the environment(Firman, 2000).The National Land Agency (BPN), whose task is to

manage land records, to process land titles and toadminister land development, issued nearly 350 devel-opment permits to large private developers involvingmore than 80,000 ha of land in the fringe areas ofJakarta during the mid-1980s to 1995. This land isenough to supply all the land necessary for housing inJakarta and its surrounding areas up to the year 2018(Tempo, 11 January 1999). Yet, the BPN still continuedto issue permits for land development in this area untilvery recently. As a result, the concentration of urbanland in the hands of large developers has increasedtremendously. In other words, too many land develop-ment permits have been granted in Jakarta MetropolitanArea, whereas the ability of the developers as permit-holders to develop fully this large area is questionable,as many of the developers simply do not have sufficienttechnical or financial capabilities to do so. At the sametime, local government’s capacity to manage andimplement the spatial plan (‘Rencana Umum Tata

Ruang’), particularly in the monitoring and control ofland conversion, has also been technically inadequate.‘Pajak Bumi dan Bangunan’ (PBB, Land and Building

Taxes) is one of the prevailing property taxes inIndonesia at present. According to Dorleans (1994) therevenues extracted from the land and building tax (PBB)is insignificant in comparison to the profits extracted byprivate developers. In fact, when this tax was introducedfor the first time in 1986, government revenue from thetax reached only US$162 million, in contrast to US$71.2

1This report based on a study of agricultural land conversion in

Indonesia conducted by P. Simatupang, N. Syafa’at and S. Mardianto,

from the Board of Research and Development, Ministry of Agricul-

ture, 2002, Kompas, newspaper, 16 October. On the outer islands, i.e.,

outside Java, there were 625,459 ha of paddy fields converted to other

uses, but there were 2,702,939 ha of new developed paddy field over the

period 1981–1999. In other words, there were approximately an

additional 2 million ha of paddy fields outside Java over the period. As

there were losses of about 480,000ha of paddy field in Java, the total

additional paddy fields in Indonesia, including Java and the outer

islands, was almost 1.6 million ha (p. 29).

billion of estimated land transactions’ value in Jakartaalone from 1989 to 1993 (pp. 53–54).The current PBB system does not take the urban

spatial plan into consideration. In fact, the PBBessentially has nothing to do with urban land-useplanning, since it is primarily designed with the objectiveof increasing revenue. Therefore, the PBB simply cannotserve as an instrument for urban land-use developmentcontrol (Parengkuan, 1991). An obvious shortcoming ofthe current PBB system is that the tax valuation doesnot take into account the various land-use categories.The system is also so rigid that is unable to respond tothe change of taxable values.The current economic crisis has hit the urban

economy very badly, resulting in a slowing down ofphysical development, most notably in the large-scaleresidential areas and the industrial estate developmentson the fringes of large cities and property developmentsin the city centres. Building construction and thedemand for space in the city centre have declinedsignificantly (see Dijkgraaf, 2000). Meanwhile, manylarge developers are not able to pay back their loansfrom national and off-shore banks, and other financialinstitutions. As a consequence, sizeable tracts of land lieunused. One study notes that about 87,500 ha of landvalued at Rp.65 trillion (US$6.5 billion at 1997exchange rates) had been acquired by developers butstill remained under-utilised in December 1997, due tothe unrealistic development permits granted by the LandDevelopment Agency (BPN) in the past (ArcadisEuroconsult, 1998).Property firms in Indonesia accrued debts amounting

to nearly US$10.7 billion by end of 1998, including off-shore loans of US$3.4 billion and domestic loans ofUS$7.26 billion, almost three-quarters of which are non-performing loans (Properti Indonesia, March 1999). Notsurprisingly, most property firms have experienced greatdifficulties with cash flow. In short, the economic crisishas created a large area of ‘idle land’ in which a hugeinvestment has been made (see also Winarso andFirman, 2002). A number of developers involved inlarge-scale housing development on the fringes of largecities and in the development of condominiums, officesand retail spaces in the city centre, have becomebankrupt. Nevertheless, the property sector in Indonesiashows signs of recovery in the early 2000s.Recently promulgated legislation in Indonesia for

regional autonomy (law 22/1999) recognises democracy,public participation, justice, plurality and increasedautonomy for the local (district) government to managetheir own development affairs. This means that the localgovernment and communities will play a very importantrole in urban land development in their own jurisdiction,without much intervention from central and provincialgovernment. The role of government in urban land-usedevelopment should move from the authority to the

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administrator, and the private sector should play alarger role (Firman, 2002). Laws 22/1999 and 25/1999,regarding fiscal decentralisation in Indonesia, stateclearly that the local government and local communitiesthrough local representative councils (DPRD), shouldhave greater discretion in deciding what is best for theurban and regional development in their own areas. Atpresent, some city governments in Indonesia haveinitiated a participatory urban development action plan,in which all stakeholders are involved as equal partnersin the decision-making process. Nevertheless, this is stillin the infancy stages and ‘learning by doing’, given thatthey have little experience. It is understandable if theinitiatives are still focused on problem solving at thecommunity and small area levels.Indonesia’s new legislation regarding regional auton-

omy stipulates that the central government will dealonly with fiscal and monetary affairs, internationalaffairs, justice, religious affairs and national economicplanning and administration. District (Kabupaten) andcity (Kota) governments are authorised to implementprogrammes in agriculture, education, health, publicworks, environment and land use, cooperatives andlabour. Accordingly, the land-use development permitsshould now be granted by the mayor (Walikota) formunicipalities (Kota) and by a head of district (Bupati)for Kabupaten. However, in 2001 the central governmentissued Presidential Decree 10/2001 which prohibits localand provincial government to issue any regulationpertaining to land-use development. Obviously thisdecree is contradictory as it goes against the spirit ofthe legislation of 22/1999 and should therefore berevoked. It is in danger of making the regulation andmanagement of urban land-use development in Indone-sia even more inconsistent and confusing. There is a‘tug-of-war’ between central government and localgovernment with regard to land management. None-theless, the central government should focus on thebroad urban land policy framework and cede theimplementation of urban land development to the localauthorities.

Major issues of urban land development policy

Land use regulation is a basic instrument for creatingland values and shaping urban physical growth (Me-nezes, 1988). Therefore, policy for the utilisation ofurban land resources should contain the principles andcontrol mechanisms of land use, including the landdevelopment permit and the building permit. Landutilisation in urban areas should be based on a spatialplan. The problem with urban spatial plans (Rencana

Umum Tata Ruang—RUTR) in Indonesia is that theyare intended and designed to control urban developmentin great detail. This obviously cannot be fully imple-

mented by the local government, due to the manyconstraints of the resources available to implement theplan. This is a common problem of urban developmentplanning in developing countries (Mills, 1992; see alsoPayne, 2000). Urban spatial planning should ratheroffer guidelines focused on the long-term strategiccomponents of urban development, instead of tryingto provide a detailed physical design of the city.In the past, urban spatial planning in Indonesia

neglected the public as a stakeholders. This was a largelytop-down process in character, dominated by initiativesof both central and local government. There has beenalmost no negotiation process to build up consensusamong various parties and stakeholders involved inurban development. To make matters worse, there havebeen several violations in the implementation of urbanspatial plans (RUTR) in the attempt to accommodatethe economic activities or because of the interests andpressures from certain parties. The main problem is thatthe Legislation of Spatial Planning (Undang-Undang

Tata Ruang), i.e., Law 24/1992, has not been followedwith the appropriate regulations concerning implemen-tation procedures. Moreover, as the Law 22/1999regarding regional autonomy clearly states, local gov-ernment should have more authority in decision-makingon land-use development. The capacity of local govern-ment should be strengthened by improving the capacityof local human resources that are capable of managingthe urban land-use development.Urban spatial plans should be made accessible and

available to the public, in order to motivate them toactively participate in urban land development controls.This will not work well under conditions where theurban plans are concealed from the public, as has beenthe case in many cities in Indonesia. In the past theconcealment of urban spatial plans has resulted in landspeculation by certain groups with privileged access tourban plans. Coordination of urban land-use develop-ment at the local level is very important. The LocalDevelopment Planning Board (‘Bappeda’) of the pro-vincial administrative level (Province) and of the districtand municipal levels should be the institution thatundertakes such coordination. However, most localdevelopment planning boards face a serious shortage ofqualified personnel.The land development permit system is intended to

serve as a tool for controlling land-use development,and it does not grant exclusive rights for land acquisi-tion, as has been the practice until very recently (seeArcher, 1994, p. 39; Winarso and Firman, 2002). AsSoemarno (2002) correctly argues, the land-developmentpermit system in Indonesia is not a problem in itself, butit is closely related to poor urban development manage-ment, as well as incompleteness and inconsistencies inthe law and its enforcement. Due to these problems,land development permits have been considered as an

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obstacle instead of a catalyst to land development. Landdevelopment permits, as a means of urban developmentcontrol, might still be necessary. However, permitsshould be granted primarily with reference to urbanspatial plans (RUTR) and only with a realistic devel-opment plan.2 In addition there should be an assessmentof urban development conditions to identify the prioritydevelopment areas, as well as reviews of permits grantedin the priority areas to monitor the quantity of landpurchased by developers as well as the progress of landdevelopment in general (pp. 26–29).The presence of private developers is a necessary

condition for urban development, and therefore shouldbe encouraged. However, it is necessary that legalassurances for the operation of the private sector bedeveloped. Likewise, financial institutions should beavailable to provide loans for such operations, notablyfor small and medium developers. Competent construc-tion industries, as well as suppliers of constructioncomponents are also of importance. However, in a timeof prolonged economic crisis, in which most of theprivate sector has been hit hard, not much can beexpected from the private sectors in land development.This is an irony, since over the past two decades, theprivate sector has dominated land development.Urban land policy should not be separated from

urban housing policy, notably the provision of land tohouse the poor families. This leads to the idea of landbanking. The government of Indonesia has planned toset up a land banking system (Kasiba: ready for builtareas) in Indonesia since the late 1980s, but until nowlittle progress has been made. Considering the sizeableareas of ‘idle land’ on the fringes of large cities, it seemsan appropriate time for the government of Indonesia toestablish a public land banking system.Land-owners need to be ‘share holders’ in the projects

being carried out by developers on their lands. This isthe essence of a partnership between the private sector,the community and government in urban land-usedevelopment. Therefore, there is a need to establish amechanism for land transfers that can take ownership ofthe land from the owners. Land consolidation, landpooling and land readjustment methods could beapplied. Using such methods, groups of land parcelsare consolidated for subdivision into a layout ofbuilding plots, streets, and open spaces, with the sale

2As Archer (1993) argues there are potential benefits of land

development permit system in Indonesia, but the system should be

revised, including: first, a land-use and circulation plan for both

districts and municipalities that indicates the proposed land-use

zoning, network of main roads and distributor/collector roads; second,

permits should be issued in stages according to the achievement of

developers; third, permits may have to include several conditions, for

instance donation of the land for the public road according to the

official plan (RUTR), and for low cost housing (pp. 26–29).

of some of the plots for cost recovery and thedistribution of other plots back to the original land-owners. The project costs and benefits are then sharedamong the land-owners (see Archer, 1987, 1989, 1993,1994; Menezes, 1988). These methods have successfullybeen implemented in several East Asian countries,including Taiwan and Korea and have also beeninitiated in Indonesia.There is also a need for comprehensive land taxation,

which takes into consideration the socio-economic andenvironmental impact of land development, the effi-ciency of land use, services and the infrastructureprovided by the government. Land taxation instrumentshave not been effectively applied to control landutilisation in Indonesian cities. In this respect, thereshould be in-depth assessment of the possibilities forimplementing the land value tax, land increment tax,location value tax, and betterment levies in the urbanland taxation regulatories in Indonesia. Perhaps it isworth raising a related question at this point: should theregulation of maximum land size ownership be appliedand strictly enforced, as many argue? (see Sumardjono,2001). Such a regulation is unlikely to be an effectiveinstrument in preventing the trend of concentration ofland ownership in large cities in Indonesia. What isneeded is progressive land-ownership related tax reg-ulatories. The more land one has, the greater theland and property taxes one has to bear; creating adisincentive for individuals to control unnecessarilylarge areas of land and speculative land trading.One of the problems of urban land development and

management in Indonesia, as in most developingcountries, is the lack of adequate data and informationon land affairs for planning and decision-making as wellas for public services. It is estimated that only 16.5million out of 54.0 million non-forested land plots(16.5%) had been registered by the mid-1990s inIndonesia (Harsono, 1996), whereas most of the landdoes not have formal title. Meanwhile, databases fortaxation purposes is outdated, and potential use valueand market value are largely ignored in these.Land markets in Indonesia’s cities, as in many

developing countries, can be divided into formal landmarkets and informal land markets, to which the non-title ownership land of the poor households belong.Without land-title ownership property owners cannotuse their land as collateral to apply for loans from banksor other financial institutions (see also De Soto, 2000;De Soto and Litan, 2002). However, providing land-titleownership to the poor households could result in theirland being bought up by higher income groups, as theinformal land market becomes transformed into aformal land market. Therefore this measure should betaken only with a great caution. Programs to improvethe living conditions of slums and squatter areas, such asKampung Improvement Programs (KIP), is considered

ARTICLE IN PRESST. Firman / Land Use Policy 21 (2004) 347–355354

more effective than providing land-title ownership to thepoor households in the area (see Doebele, 1987).Poor land administration has resulted in high

transaction costs and land disputes, particularly inrapidly growing areas such as on the fringe of Jakarta.One of the challenges is that there are many institutionsthat deal with land administration in Indonesia. Theseinclude the Land National Agency (BPN), NationalCoordinating Agency for Surveying and Mapping(Bakosurtanal), Ministry of Agriculture, and Ministryof Forestry, and the local government. These organisa-tions are notoriously fragmented and perform landregistrations largely for their own interests. Anotherproblem is that each agency has its own informationsystem and the lack of an efficient exchange ofinformation between the institutions has resulted in aninefficient land information system. A further problemis that land administration in Indonesia is still toomanagement-focused. This is a difficult problem toresolve, given the lack of capacity of local government inland management. In short, there is a need for improvedthe coordination and communication of the manyinstitutions involved in land administration.

Conclusion

The ultimate goal of urban land policy is to makeurban land utilisation efficient and to make the controlof urban land effective so as to improve the equity ofurban land market outcomes. Market mechanisms aloneare unlikely to be able to achieve this primary objective,therefore urban land regulations, administration andplanning are needed to assist these market mechanismsto work effectively. The scope of urban land policyshould include, but not be limited to, land-use regula-tion and planning, land development institutions,property rights, land taxation, infrastructure provisionand development, and public and private sectorparticipation in land supply and development.The key issues of land development in Indonesia

include poorly coordinated urban land management, aninflexible land regulatory and framework, inappropriateland taxation, lack of secure land tenure, and the lackof urban land data and information. These issues aresimilar to those in other developing countries, asexemplified in the case of Kenya (Olima, 1997);Tanzania (Kironde, 1997); Zimbabwe (Rakodi, 1996);India (Sivam, 2002); Asian developing countries (Me-nezes, 1988; see also Koppel, 1993); and Latin America(de Soto, 2000; de Soto and Litan, 2002).Urban land-use planning in Indonesia in the past was

essentially top-down in character and largely neglectedthe public as a stakeholder. The role of government inurban land development should change, from that of theauthority to the administrator. As the new legislation on

regional government in Indonesia reserves greaterautonomy to local government to manage their owndevelopment, the local government should play a veryimportant role in urban land development in theirjurisdiction, while the intervention of central govern-ment decreases. The central government should focusonly on the broad policy framework of urban develop-ment. However, in order to fulfill this function, capacityof local government, notably the Municipality (Kota)and District (Kabupaten) planning board (Bappeda), toplan and manage urban land, needs to be improved.Land development permits, as a means of urban

development control might still be necessary. However,permits should be granted primarily with reference tothe urban land-use plan (RUTR). Land taxationinstruments have not been effectively applied to controlland utilisation in the cities, and adequate data andinformation on land affairs are lacking.The private sector played a dominant role in urban

land development in Indonesia in the past, but it needscontrols. Under the current economic crisis, the privatesector is unlikely to be interested in investing for landdevelopment. Nevertheless, should the crisis pass in thenear future, the role of the private sector in urban landdevelopment in Indonesia will become very important.Judging from the mistakes of the past, however, thegovernment should control private-sector involvementin urban development. In order to facilitate private-sector participation, there is a need to establish financialinstitutions that can provide financial loans, notably forsmall and medium developers.

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