Aceh is the Western most province of Indonesia. It is located on the Northern end of Sumatra Island. Granted a special autonomous status, Aceh is a religiously conservative territory and the only Indonesia province practicing sharia law officially. Apart from all of these specialities (autonomy and sharia law) for the last five years Aceh has been categorized as the poorest province on Sumatra Island and the sixth poorest in Indonesia by Central Bureau of Statistics (BPS). In September 2019 there were 810 thousand (15, 01% of the population) living under the poverty line. Financial assistance in different forms such as a special autonomous fund (Dana Otonomi Khusus) has been provided to aid the development of the region. However, this had minimal effects as the province is still underdeveloped and poverty stricken. Several studies have shown that prolonged conflict and the Tsunami were major contributors in the process of slowing the pace of social and economic development in Aceh. On the other hand, some studies revealed that Aceh is poorly governed and that might have contributed to its high level of poverty. This paper aims to explain the reason behind the phenomenon of poverty in Aceh and seeks to describe the importance of good governance for the region, as an alternative method of achieving acceptable social welfare standards and economic development.

Keywords: Good Governance, Poverty, Social Welfare, Economic Growth, Development, Aceh.


Aceh was known for its traders. It was them who got Indonesia their first civilian airliner DC3, which later became the first aircraft of the newly launched national airline Garuda Indonesian Airways (later rebranded as Garuda Indonesia). A lot has changed since then. Acehnese insisted an autonomy president Soekarno refused to grant. This led to the formation of the separatist Free Aceh Movement (Gerakan Aceh Merdeka, GAM) and a long term instability in the region. Most of the raw material such as oil was extracted by foreign entities such as Exon Mobil and the revenues were sent to the central government budget. Finally, in 2001, Indonesian government granted Aceh the autonomy and allowed the local authorities to manage the provincial Foreign Direct Investments (FDIs).

For over twenty years, Aceh has managed its region under the special autonomous status. However, Aceh is unable to point to any significant growth rate or satisfactory index of general wellbeing in the past twenty years. It is sobering to note that the region has the unenviable distinction of being the region in Indonesia to suffer in economic performance for such an extended period of time. Different scholars have articulated that this poor economic performance in the region could be influenced by either internal or external forces. For example, the lasting conflict exacerbated the negative impact of the 1997 financial crisis on poverty levels in Aceh. While the rest of Indonesia slowly recovered from that crisis, the situation in Aceh worsened. The poverty level almost doubled from 14.8 percent in 1999 to 29.8 percent in 2002 (R. Sukma, 2004). On December 26, 2004, an earthquake struck 150 km off the coast of Aceh. Shortly afterward, a tsunami hit, and within minutes it had swept clean an 800-km coastal strip of Aceh.

Some 170,000 people perished, and approximately 500,000 were displaced from their homes. The natural disaster caused immense social, economic, and environmental devastation to areas that were already poor. Even before the tsunami, approximately one-third of the population of Aceh lived in poverty. After the disaster, hundreds of thousands more became vulnerable to poverty and dependent on food aid. The physical damage and losses have been estimated at US$ 4.9 billion. Productive sectors alone suffered losses estimated at US$ 1.2 billion. The signing of a peace agreement in Helsinki in August 2005 between the Government of Indonesia and the Aceh Independent movement led to the special autonomy status and a massive injection of financial resources to the Aceh region. As a result, the local government in Aceh began receiving an unprecedented amount of financial resource from the Indonesian central government.

While Aceh’s physical reconstruction is impressive and the Indonesian government’s Rehabilitation and Reconstruction Agency for Aceh and Nias (BRR) has rightly been praised as a model of post-crisis governance and leadership, these achievements obscure deeper problems that have made long-term recovery for many Acehnese difficult and elusive. The hard truth is that for most Acehnese, their “recovery” still remains an unfinished journey, as many continue to struggle to make ends meet (Fan, 2014). Even after receiving more than US$7.7 billion in aid, from both international and national sources, Aceh remains one of the poorest provinces in Indonesia with 15 percent of the population living below the country’s poverty line (significantly higher than the national average of 9,2 percent). Today, in spite of much optimism that the province would undergo an economic renaissance on the back of the reconstruction bubble, Aceh’s economy is stagnant and unemployment is high (Fan, 2014).

Despite the commitments of international and national communities to assist Aceh in its efforts to achieve accelerated growth, the support provided has fallen short of expectation. Some researchers have argued that bad governance has greatly contributed towards Aceh lagging behind when it comes to development. A study conducted by World Bank indicated that institutions of local government in Aceh arguably do not have the capacity to effectively manage the region. Corruption is a major problem within Indonesian local government (Barron and Clark 2006). In a research conducted in 39 cities in Indonesia examining public satisfaction with local governments, noted that “the majority of respondents are disappointed with their local government commitment to eradicate corruption and report practices of corruption, collusion and nepotism” (Chene, 2009).

Weak governance undermines economic performance through various channels, including deficiencies in government functions and distortions to economic incentives. Weak governance in Aceh is likely to be contributed by limited institutional capacities. In additions, weak governance is strongly and positively been associated with high corruption which contributes towards poor economic and social performance. Therefore, there is a need to examine governance and accountability of Aceh local government to overcome the problems of this region. This paper aims to explain the reason behind the phenomenon of poverty in Aceh and seeks to describe the importance of good governance for the region, as an alternative method of achieving acceptable social welfare standards and economic development.

Understanding Poverty in Aceh

In 2019, Aceh’s population was around 5.3 million 810 thousand people live under the poverty line. Fulfilling basic needs were an indicator used by the Central Bureau of Statistics (BPS) Aceh in the poverty measurement methodology. When referring to the methodology, the causes of poverty in Aceh are food problems (food commodities) and housing (non-food commodities). To measure poverty, BPS uses the concept of the ability to meet basic needs. With this approach, poverty is seen as an inability on the economic side to meet basic food and non-food needs as measured by expenditure. So the poor population is the population that has an average monthly per capita expenditure under the poverty line. Poverty is a multi-dimensional construct of human welfare that encompasses many traditional measures of well-being, such as income, health, and security. Household consumption is widely viewed by economists as a broad summary measure of available household resources and, hence, is the preferred dimension with which to begin a study of poverty.

As an autonomous province, Aceh has received Special Autonomy Fund assistance from the Indonesian government since 2008 and will continue until 2027. In 2017, Aceh received 8 trillion Indonesia Rupiah assistance from the central government, in 2018 Aceh also received 7.9 trillion in aid, and in 2019 the central government also allocated 8.3 trillion to support Aceh’s development. In total, up to 2019, the westernmost province of Indonesia has received a total of 73.1 trillion in special autonomy funds. While until 2027, Aceh is predicted to receive a total special autonomous fund of 163 trillion. However, this funding had minimal effects as the province is still underdeveloped and poverty stricken. Until now, Aceh is still the poorest province in Sumatra Island. According to the data from the Central Bureau of Statistics (BPS), until September 2019, Aceh was still classified as a province with the sixth-largest percentage of poor people in Indonesia.

According to the Law on the Government of Aceh, the special autonomy fund as referred to in article 179 paragraph (2), constitutes revenue from the Aceh government intended to finance development, especially development and maintenance of infrastructure, empowerment of the people’s economy, alleviation of poverty, as well as funding for education, social and health. Therefore, the special autonomy fund has a major influence on poverty alleviation in the entire Aceh region. However, that hope was not realized even though the Special Autonomy Fund has been flowing for 12 years since 2008. Several issues that cause the implementation of special autonomy funds to be ineffective, one of which is the high rate of corruption among the Aceh government. Corruptors in the Aceh government are numerous, ranging from executive officials (governors, regents, heads of offices, and others), legislative bodies (DPR-RI, DPRA, DPRK), to the judiciary (courts, judges). Corruption seems to have become a culture in Indonesia. In mid of 2019, Acehnese is saddened to hear that the Governor of Aceh, Irwandi Yusuf, and Bener Meriah Regent, Ahmadi have been arrested and have been tried by the Indonesia’s Corruption Eradication Commission (KPK). Both were charged with corruption in the Aceh Special Autonomy Fund reaching 1.5 trillion. Corruption in Aceh occurs systematically and extensively. It not only harms the state’s finances, but also violates the social and economic rights of society at large.

The second factor why poverty in Aceh has not fallen is because development programs are not well-targeted. Many agencies make program proposals by copy paste and do not comply with the mandate in the Medium Term Development Plan. To alleviate poverty in Aceh, the poor must be a priority, and the main target of empowerment and policies made by the government must be more supportive of the development of the people. Furthermore, the government must also optimize the use of the fund to empower the community. While the long-term solution offered is to make an efficient personnel expenditure. Currently, if we look closely at the balance of employee expenditure versus public expenditure, it is still very lame. The public only gets around 30% of the ration. While the rest is intended for employee spending, official travel, official car purchases, etc. This case should be a concern for the Aceh government as the public funds are supposed to be larger in proportion of the community.

Indicators of Good Governance

Governance has been defined as the manner in which power is exercised in the management of a country’s economic and social resources for development. According to the World Bank, good governance is evaluated by the implementation capacity of governance principles of a country, providing a framework for market development and economic growth. Several econometric studies tested the relationship between good governance in the sense of “market-enhancing governance” (stimulus institutions market) and showed a positive relationship between good governance and economic growth. However, governance is not simply about how government conducts business in its own sphere. It is also about how government interacts with civil society. It tells how well government has encouraged and facilitated people’s participation not only in the delivery of services but also in the evaluation and monitoring of government performance itself. Governance is a complex concept. It includes the state’s institutions and structures, decision-making processes, capacity to implement and the relationship between government officials and the public (Landell-Mills and Serageldin 1992). Good governance is the concept used in the recent past by the World Bank. World Bank pointed out that governance means decision making and public policy formulations that is best in the public interests. In other words, it states that public affairs should be managed in such a way that ensures transparency, accountability and, modernization in public administration and privatization.

International Monetary Fund suggests some factors to increase the economic efficiency and prosperity which relate to good governance; such as 1) Rule of Law 2) Increasing the efficiency and improving the process of accountability 3) Tackling the corruption strongly. Effective governance ensures equal participation from all the sectors. It also guarantees social justice and an orderly society. Governance really matters for prosperity, economic development and improvement in social indicators. Governance is one of the key elements for the human development for both of the partner countries and the donor agencies and donor countries. It is an international consensus among the nations regarding the effectiveness of good governance and significance of its essential elements. Combating corruption, effective institutions, effective political and electoral process in the presence of democratization, human rights and its protection, participation of the civil society, and the attainment of justifiable economic, political and social marks are some of the main elements of the international consensus. While according to this consensus transparency, voice and accountability, rule of law are the core components of good governance.

Social and economic scientists stress upon the importance of governance in a country. According to them, growth requires a government that facilitates the producers and provides them with proper information. Characteristics that a good government should possess are transparency, accountability, strategic vision, rule of law and control over corruption. All these attributes work together to provide an environment that implements developmental programs efficiently, helps in taking new initiatives and boosts energy in creative minds. Governance should also accompany civil society, private sector, international investors and companies. It should be like a bridge that connects important institutions and sectors of the economy. It should provide facilities to every sector equally in order to increase the productivity.

According to international financial institutions the characteristics of efficient government vary from country to country, but that attitude of the government should be positive and productive, accepted that good governance can be achieved through a democratic political system. Countries all over the world are analysing the role of their government in providing basic facilities. For this reason governance indicators are introduced by the World Bank. World Bank pointed out that governance means decision making and public policy formulations that is best in the public interests. In other words, it states that public affairs should be managed in such a way that ensures transparency, accountability and, modernization in public administration and privatization.

The World Bank (Kaufmann, Kraay, Mastruzzi, (1999-2007) built composite indicators summarized under six headings:

1. Voice and accountability, which measures tendencies of the political process, civil liberties, political rights and independence of the media. The responsibility is that of citizens who participate in political life through elections, public decisions.

2. Political instability and absence of violence, which measures the perception of a possible destabilization of the political regime through elections or violence.

3. Government effectiveness, which measures the perception of the quality of public service or public administration. This index assesses the perception of the government’s credibility through the trust given to its administration.

4. Rule of law, measures the perception of citizens of the rules that structure society and the degree of compliance with these rules. The indicator measures the perception of the efficiency and fairness of the judicial system and respect for contracts and agreements tied.

5. Quality control, measures perceptions which are favourable or not for market economy, including anti-liberal interventionist policies such as price controls, imports and exports, the banking system. This index allows us to appreciate the business climate for foreign investors.

6. Control of corruption, measures perceptions of the use of public power in the pursuit of private gain. The purpose of the construction of these indicators is to measure the evolution of good governance and implement a policy to improve these indices in order to ensure that improving good governance could reduce the failure of the state. To support the conditions for economic development: only improved good governance can lead to secure property rights, improved equity, and legal credibility secure contracts assumed by the government whose bureaucratic quality and low corruption exist.

Characteristics of Good Governance

Good governance is a dynamic administration construct that embraces fast changing political, social and economic arrangements. It tries to transform the political, economic and social life of the citizens within the framework of parliamentary democracy. Good governance has 8 major characteristics. It is participatory, consensus oriented, accountable, transparent, responsive, effective and efficient, equitable and inclusive and follows the rule of law. It assures that corruption is minimized, the views of minorities are taken into account and that the voices of the most vulnerable in society are heard in decision-making. It is also responsive to the present and future needs of society.


They see participation as key to good governance. Citizens participate in the organs of government – executive, legislature, and judiciary and regularly exercise their rights to the franchise. Participation by both men and women is a key cornerstone of good governance. Participation could be either direct or through legitimate intermediate institutions or representatives.


The test of a vibrant democracy is the degree of success in ensuring accountability of those who rule, to those from whom they derive their authority. Accountability is a key requirement of good governance. Not only governmental institutions, but also the private sector and civil society organizations must be accountable to the public and to their institutional stakeholders. In general, an organization or an institution is accountable to those who will be affected by its decisions or actions. Accountability cannot be enforced without transparency and the rule of law. The process of accountability, trust, and gradual collaboration is simultaneous. Neglecting true, honest and realistic accountability will lead to the lack of trust, suspicion, and eventually distrust, and distrust will lead to the lack of support, and then in opposition and resistance.


A major premise of good governance is the citizen’s access to information, and a good government must ensure free flow of information to citizens. In a parliamentary democracy, transparency in government becomes a necessity and this becomes possible by the basic doctrine of separation of power, and checks and balances among the executive, legislature, and judicial branches. Transparency requires that the decisions are taken and their enforcement is done in a manner that is in conformity with the rules and regulations. Transparency means that decisions taken and their enforcement are done in a manner that follows rules and regulations. It also means that information is freely available and directly accessible to those who will be affected by such decisions and their enforcement.

Rule of Law

This is a framework that is enforced in an impartial manner for protecting human rights, securing social justice and checking abuse of power; it is a prerequisite for good governance. Good governance requires fair legal frameworks that are enforced impartially. It also requires full protection of human rights, particularly those of minorities. The framework of the rule of law serves as the foundation for a democratic society. Its effect on economic performance, social development and integrity infrastructure of the country is pervasive. Otherwise stated, the rule of law is a cornerstone to the improvement of public health, the safeguarding of citizens’ participation, of security and of the fight against poverty (Agrast, 2010).

Consensus Oriented

There are several actors and as many viewpoints in a given society. Good governance requires mediation of the different interests in society to reach a broad consensus in society on what is in the best interest of the whole community and how this can be achieved. It also requires a broad and long-term perspective on what is needed for sustainable human development and how to achieve the goals of such development. This can only result from an understanding of the historical, cultural and social contexts of a given society or community.

Effectiveness and Efficiency

Good governance also rests upon the fact that the process and institutions should produce results to meet the needs of the society. It also entails proper utilization of resources at their disposal as well as in the government. Good governance means that processes and institutions produce results that meet the needs of society while making the best use of resources at their disposal. The concept of efficiency in the context of good governance also covers the sustainable use of natural resources and the protection of the environment.


Good governance would be possible only when the institution and processes are responsive and serve all stakeholders within a reasonable time-frame. Good governance requires that institutions and processes try to serve all stakeholders within a reasonable timeframe. Responsiveness can be considered as one of the key components of good governance. In addition to government agencies and institutions, private organizations and civil society institutions should also be responsible for their policies and actions. It should be noted that the principles of good governance are interconnected and the implementation of each of them requires the implementation of other principles.

Inclusiveness and Equity

Good governance advocates that people should not be excluded from the mainstream of the society and the marginalized are able to avail opportunities. A society’s well-being depends on ensuring that all its members feel that they have a stake in it and do not feel excluded from the mainstream of society. This requires all groups, but particularly the most vulnerable, have opportunities to improve or maintain their well-being. Sustainable welfare in the community will be possible by recognizing equal rights for all people. In the community, it needs to be ensured that individuals share the interests of the community in proportion to their activities. In other words, in good governance, everyone must have equal opportunities.

Having highlighted the above elements, Acehnese leaders, present and in future, should ensure that these elements are domesticated. Democratic system of governance with more modifications may help to cure the problems of good governance Aceh.

Good Governance and Its Implication on Social Economic Growth

In this part of the paper, good governance impact towards the social and economic development in Aceh will be discussed. If the government of Aceh could work on enhancing the government, the social and economic development in the province could be achieved successfully. It is hypothesized that well qualified administration and institution or being good governance can lead to efficient resource allocation and well management. It can be a supportive factor inducing economic functioning and growth. The World Bank (2007) studied quality of governance comparatively among countries and its role in economic development. The study found that countries in which they can control corruption well were those developed economies.

The importance of good governance was discussed in detail by the World Bank. The report requested for the governments’ attention to place priority on good governance. The report proved and pointed out the role of good governance that supported the achievement of economic development in various goals, namely economic growth, economic equity, and economic stability and sustainability. The study also analysed and indicated that income per capita has a positive relationship with absence of bribery and corruption. Good governance creates a set of essential institutions that increases in the productivity of human and physical capital and attract investment for developing human and physical capital which will eventually increase economic growth. Many of the research works of the International Monetary Fund (IMF), the United Nations, and the World Bank shows that good governance leads to economic growth. For instance, Kaufman and Kraay evaluate the World Governance Indicators over the period 1996 to 2002 and find a positive relationship between per capita income and quality of governance (Kaufman and Kraay, 2002).

Khan examined theoretically the impact of governance in economic development. There are two points of views regarding governance, one is about the state capacities that are necessary for speeding up the development process and the other is about the importance of governance factor relative to other economic factors at an early stage of development. Khan stated those capacities that keep competent markets and limit government failure. The government, failure of many emerging countries is described by the efforts of their states to do too much, consequential in the relating unproductive rent–seeking activities. Khan used two data sets: one was composite property rights as a proxy for market, enhancing governance and the second was voice and accountability plus political instability (Khan, 2006). Jasimuddin and Joya studied the relationship between governance and economic development in South Asia. They provided the evidence with reference to recent literature that without improving the governance level, it is not possible for developing economies to get a satisfactory level of economic development. According to them, democracy, stable political regimes, accountability, control of corruption and government effectiveness are the crucial indicators required to improve social indicators (Jasimuddin and Joya, 2007).

Elijah studied the economic reform program and corruption situation. He discussed the corruption of the elite and bureaucracy on the social culture of the economy. It is said that corruption hampers the economic growth, development and reduce the economic efficiency of the country. Corruption in the political institutions of the country slows down the progress of the economy and productive capacity of the economy. It impacts adversely on the national image and thus reduces the foreign direct investment FDI. In Aceh, corrupt regimes which cause monopoly, lesser accountability, and poor rule of law has stolen the resources of the economy. People in Aceh indulged in corrupt practices due to the extreme poverty, unemployment, lesser control of political and governing institutions. They have caused higher rate of grass root corruption. Aceh needs to control corruption, for this reason they must established good governance in their government system. It is only by applying good governance system Acehnese can tackle down corruption and improve their economic condition. The need of the hour to control the corruption, especially the corruption which was prevailing in the institutions. For this reason people should be educated which can accelerate them to play their role in the process of economic development. Also, there is a need for the job creation which can also reduce the malpractices of the officials. Educated citizens can play effective role and thus ensures equality among different sectors and citizens of the economy (Elijah, 2007).

Torres and Anderson declared that a state with poor governance is a fragile state. They provided a complete overview regarding the fragile states. Severe problems are attached to the fragile states, such as, poverty, violations of human rights, conflict issues, unstable state policy and regional security threats. The situations of fragility could also be observed by considering the social environment of the country as well. In such a situation the effective utilization and mobilization of domestic as well as international resources becomes difficult. Domestic resources comprise of the revenue collections of government and control of corruption which reduces the overall cost of the economy (Torres and Anderson, 2004). Kaufman and Kraay provided justification with their empirical work that governance and national income are significantly related. Hence, improved quality of governance is also inversely correlated with poverty. A study by the World Bank ‘The Voice of the Poor (2000)’ which was conducted in 66 countries confirms that the poor are affected from one common element that is lack of power and voice governance (Kaufman and Kraay, 2003).

Girishankar defined governance as power to run economic, social and political institutions and mention those dimensions of this power which were (a) process of selecting government, accountability, monitoring and replace of government (b) efficient management of resources, formulation and implementation of sound policies by government (c) respect of social and economic institutions. Poverty and governance were interrelated with each other, and if power was not used in the right direction the poor who had less power, were most likely to be affected badly. Weak governance compromises the inefficient delivery of services and the influence of powerful interest groups on policy making, less public spending on pro poor projects, lack of property rights and disadvantages police protection and legal services to poor (Girishankar, 2001).

Chibba mentioned that countries with good governance have higher rates of economic growth in comparison to those with poor governance. Furthermore, good governance is a critical policy requirement for a successful poverty reduction strategy and human development progress of any country. Good governance enhances human rights and values and reduce intolerance and repression. It also has an instrumental role in freeing people from the threat of violence, promoting prosperity and in ensuring that prosperity is shared (Chibba, 2009).

The International Monetary Fund (IMF) expresses its view about the linkage between good governance and economic development, stating that promoting good governance in all its aspects, including ensuring the rule of law, improving the efficiency and accountability of the public sector, and tackling corruption can make economies prospers (International Monetary Fund, 1997). Good governance is important to achieve investment and thus economic growth by creating a sound business environment. Good governance would minimize persistent occurrence of bad policy and therefore, enhance policy implementation.

It can be concluded that corruption is a barrier to economic growth by creating economic distortions, reducing investment as the result of higher costs of doing business and increasing inequality. High corruption shows that a country suffers from a governance problem as the result of weakness in its institutions such as lack of accountability, transparency, competent bureaucracy and particularly lack of rule of law. Therefore, improvements in governance by reducing corruption will strengthen the country’s institutions, create a more efficient and effective bureaucracy and a better investment climate, as well as improve allocation of resources. All of these will enhance economic development.


The Aceh province when compared to other parts of Indonesia has been lagging behind when it comes to development. The province continues to be underdeveloped and poverty stricken despite the overwhelming financial assistance from Indonesian central government and different international agencies. The under-development in Aceh is estimated to be contributed by poor governance. Therefore, there is a need for Aceh governments to work towards promoting good governance in order to achieve sustainable socio-economic development goals. Good governance is essential for achieving sustainable development as it creates a favourable set of government policies for economic growth. Moreover, it helps contribute towards spending on the social sector, hence improving the welfare of the public, enhance economic growth and poverty reduction. Additionally, good governance should comprise of four basic elements, including good public sector management, accountability by public officials, and respect for the rule of law lastly transparency and availability of information to citizens. It is only by applying good governance system Acehnese can tackle down corruption and improve their economic condition. In contrast, without good governance Aceh will remain as a fragile state and people will always live under poverty, violations of human rights, conflict issues, unstable state policy and regional security threats.


Muhammad Zawil KİRAM



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