Abstract
Decentralization in Indonesia has several potentials, which include the strong social capital within the rural community, the good individual capacity of village officers and the functioning rural community leaders. At the same time, decentralization has challenges including the low political commitment of the district government in prioritizing rural development in the local budget , the low efficiency of district agencies, the low capacity of district council for analyzing the budget, the inconsistency of local implementing regulations in defining decentralization and establishing a participatory mechanism , the tradition of formalization within the village government , and the problematic capacity realization of village government due to lack of motivation, incentives and coordination. Thus, to improve decentralization, the government of Indonesia should strengthen legislation on decentralization , deliver capacity development to rural institutions , and institutionalize participation of rural community, especially the poor, in rural development and poverty alleviation programs.
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