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Explainer: Key takeaways on regional fiscal management law
The law has sparked debate over regional autonomy.
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Lawmakers attend a physical plenary meeting at the House of Representatives building in Senayan, Central Jakarta, on Sept. 15 last year. The House recently passed a law on the regional fiscal management. (Antara/Puspa Perwitasari)
T
he House of Representatives passed on Dec. 7 a law that overhauls regional budget management, sparking debate over the fiscal autonomy of regional administrations, against the backdrop of Indonesia's relatively young decentralization movement.
The Fiscal Relations between Central Government and Regions (HKPD) Law, which amends the Center-Regions Fiscal Balance Law, the Regional Tax and Fees Law and Article 114 of the Job Creation Law, provides for a five-year transition period.
Supporters, including the Finance Ministry, say the HKPD Law will boost revenue, simplify debt financing and streamline spending for regions, but critics point out that the law also grants the central government more say over annual regional budgets (APDBs) and carries the risk of loan defaults.
“This is also one of our concerns. At first glance, the issue of recentralization seems apparent, but we will know for sure as we conduct more research," said Indonesian Forum for Budget Transparency (Fitra) researcher Gulfino “Fino” Guevarratoon Tuesday.
However, Fino emphasized that the law's benefits might outweigh its drawbacks, considering the fiscal inefficiency of regional administrations.
Finance Ministry data show that around 70 percent of an APBD is funded by central government transfers, implying a heavy reliance on the state budget to fund regional operations.
The same data show that regional administrations are slow to disburse their budgets, with only 56.36 percent of total APBDs disbursed as of October this year. Administrations are known to park money in banks and hold off spending until the end of the year.
