In the ASEAN region, territorial reform is one of the main tools for administrative transformation and is one of the elements that increase the effectiveness of public administration. Although there is cooperation between the economies of the countries within the ASEAN framework, at the same time, the approaches of the countries to internal governance differ from each other.
Diverging Models of Territorial Reform in ASEAN
The Philippines and Indonesia have adopted models based on “expansion” by taking as an example and increasing the number of provinces, prioritizing decentralization and local representation. With recent administrative reforms, Vietnam has done the opposite, and the state has implemented a consolidation-based model by reducing or merging the number of provinces in order to strengthen coordination.
Although the policy of reducing or increasing the number of administrative units constitutes the internal strategy of the states, the results for foreign investors can be somewhat unpredictable or lead to significant changes. Because such reforms affect the licensing procedure, the clarity of regulation as a result of new rules, etc.
In this section, a comparative analysis of three ASEAN countries shows how different forms of territorial reforms affect the investment climate and how they can shape it.
The Philippines: Expansion and Decentralization
The Philippines has followed a “province creation” model since the mid-20th century, gradually dividing larger administrative units into smaller ones. This process is not arbitrary; it is firmly grounded in law. Alongside the Constitution, the 1991 Local Government Code sets out clear criteria for creating new provinces, including financial viability, population size or land area, and the ability to deliver basic public services. In practice, this means that a new province must meet minimum income thresholds, pass a plebiscite, and be approved by Congress.
At least on paper, the system is well-structured. The underlying idea is straightforward: smaller administrative units should be closer to the people, improve service delivery, and support decentralization and local development.
In reality, however, outcomes have been mixed. Meeting the legal requirements does not always guarantee that a newly created province will function effectively in the long run. Much depends on its financial resources and administrative capacity.
The proposed creation of Nueva Camarines illustrates this tension. Although the initiative followed the formal legal process, concerns were raised about whether the province could sustain itself financially. Heavy reliance on transfers from the central government would likely limit its autonomy, raising doubts about its long-term viability.
A different kind of challenge can be seen in the case of Dinagat Islands. Its path to becoming a province was legally complicated, with court challenges creating periods of uncertainty. While the broader legal framework remained stable, the situation showed how territorial changes can temporarily disrupt administrative clarity.
Fiscal sustainability is, in fact, a recurring issue. Many newly created provinces depend heavily on Internal Revenue Allotments (IRA), which can constrain their financial independence if local revenue generation is weak. As a result, not all provinces operate on the same footing.
Administrative capacity also varies. Establishing a new province requires building institutions from scratch offices, personnel, and regulatory systems. Some regions manage this transition relatively smoothly, while others face delays and coordination problems.
For foreign investors, these differences are not just technical details. Although the national legal framework in the Philippines is stable, the practical experience of doing business can vary significantly from one province to another. Licensing procedures, administrative efficiency, and responsiveness often depend on the strength of local institutions.
Overall, the Philippine model reflects a clear commitment to decentralization. At the same time, it creates uneven governance conditions across regions. For investors, this makes it important to look beyond national laws and pay close attention to how individual provinces actually function in practice.
Indonesia: Expansion, Reassessment, and Controlled Decentralization
Although the provincial reform in Indonesia was initially similar to that of the Philippines, the government later changed this policy. Since Indonesia gained independence, it has been implementing regional expansion. Legally, the country’s Constitution also allows for this, as Article 22D(1) of the 1945 Constitution provides for the creation, expansion, and consolidation of regions entrusted to the Regional Representative Council of the Republic of Indonesia. Later, decentralization incentives increased further under the Regional Administration Law No. 22/1999. From 1999 to 2014, a large number of autonomous regions, provinces, regions, or cities were created.
However, the effectiveness of the new administrative units created as a result of the reform was a matter of debate. According to studies, the effectiveness of the newly created administrative unit can be determined within about three years. According to the assessment of the Ministry of Home Affairs, eighty percent of the results are unsatisfactory. In addition, cities such as Batu, Banjar, Bontang, Tanjung Pinang, which have successfully developed as a result of the reform, should also be highlighted.
At the end of 15 years (1999-2014), the government, taking into account the weaknesses that emerged as a result of the reform, improved the regional expansion policy by adopting the Regional Government Law No. 23/2014. According to the new provisions, the status of autonomy is no longer granted once, but after three years of supervision and a number of procedural rules, the territory is raised to the level of New Autonomous Region (DOB). Even if the newly created territory is ineffective, it can be merged with the parent region.
The reforms until 2014 had both positive and negative consequences. North Kalimantan can be cited as an example of a reform that has had positive results. Thus, the economic development indicators of the territory have increased as a result of the reform. However, some authors note that part of these consequences is related to the previous economic potential of the region.
The main reasons for the government’s change in territorial expansion policy between 1999 and 2014 were problems such as fiscal dependency, weak financial sustainability of new regions, elite capture and politically motivated divisions. It is also important to note that although the moratorium policy is currently being continued in Indonesia, regional expansion is not essentially prohibited. The Papua administrative division reform that took place in 2022 can be cited as an example of this. Although this reform has positive results such as bringing public services closer to the region, promoting regional development and infrastructure, and more effective coordination of governance, there are also discussed issues such as increased administrative costs, uneven development of institutional capabilities, and uncertainty of long-term economic impact. The Papua reform is an example of how the reform was ultimately implemented for the purpose of governance and regional development.
An interesting aspect of the matter is that requests to the government for regional expansion continue. Currently, some authors question whether the government will continue the moratorium policy. The increase in the number of proposals (made in accordance with the requirements of the legislation, unlike in previous periods) plays a decisive role here.
Naturally, these reforms implemented in Indonesia have had both positive results and difficulties for investors. The positive effect of regional expansion for investors is that infrastructure is developing in places, public services are becoming closer to businesses, and local economic development programs are being adopted in places. However, one of the difficulties for investors and the government is “regulatory fragmentation”. Thus, different procedures and regulatory rules can be established in different regions, which can create a complex regulatory environment for investors. Another difficulty is “administrative capacity problems”. Sometimes, experience and institutional experience in newly created places may not be at a sufficiently high level, which can slow down the decision-making process, etc. In fact, this can also be linked to the granting of the status of a “preparatory region” to a new region with the new legislation. “Fiscal dependency” is one of the factors that creates difficulties for both investors and the government. In many cases, newly created territorial units are not financially self-sufficient and are dependent on the central government. This directly affects the implementation and acceleration of local development projects.
Based on the above, the impact of rational expansion on investment cannot be specifically assessed as positive or negative, but depends on the economic and institutional capacity of the newly created region.
Vietnam: A Consolidation-Based Model
The reform in Vietnam, in contrast to the other two models, represents a consolidation-based model. While the Philippines and Indonesia have adopted an expansionist approach, Vietnam intends to strengthen coordination and facilitate decision-making by merging or reducing administrative units. What is also important from an investment perspective is that this model offers faster procedures and regulatory consistency. The potential benefits of reform, as well as possible risks, have been discussed in the previous sections.
Comparative Insights for Investors
An analysis of the models of these three countries shows that territorial reform in ASEAN does not follow a single trajectory, and the impact of these models on investors depends more on the effectiveness of governance, legal clarity, and administrative coordination in practice.
Read more: Strategic Recommendations for Central Policymakers
