TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Popular Reads
Top Results
No results found. Please check your search term and try again
Can't find what you're looking for?
View all search results
Popular Reads
Top Results
No results found. Please check your search term and try again
Can't find what you're looking for?
View all search resultsRemoving the regulatory hurdles in regional endowment funds
A regional endowment fund is a new instrument for intergenerational fiscal sustainability that allows local governments to invest public funds with a long-term horizon.
Change text size
Gift Premium Articles
to Anyone
Share the best of The Jakarta Post with friends, family, or colleagues. As a subscriber, you can gift 3 to 5 articles each month that anyone can read—no subscription needed!
A worker arranges pufferfish skins to dry at a small enterprise site in Banda Aceh on Nov. 4, 2024. (Antara Foto/Ampelsa)
A
fter seven years of persistence, Bojonegoro regency in East Java is now close to realizing its plan to establish a regional endowment fund (DAD). In May, the administration committed to allocating Rp 3 trillion (US$181 million), which is now under review at the Finance Ministry. Proposed in 2018, the initiative was initially rejected due to the absence of regulations.
The legal foundation was eventually established through the 2022 Central-Regional Fiscal Relations Law (HKPD), followed by Government Regulation (PP) No. 1/2024 and Finance Ministry Regulation (PMK) No. 64/2024. Under this framework, Bojonegoro aims to secure long-term development financing and provide reserves for future generations in anticipation of declining oil and gas revenues.
A DAD is a new instrument for intergenerational fiscal sustainability that allows local governments to invest public funds with a long-term horizon. The model follows sovereign wealth funds and national endowment funds currently managed by the central government. The scheme preserves the principal and uses only the investment returns for program financing.
A DAD’s governance structure consists of two entities. The fund management unit (UPD) is responsible for investment strategy and risk management, while the program implementation unit (UPP) manages the planning and execution of programs funded by investment yields.
Examples of successful endowment systems can be found both globally and domestically. Domestically, the Endowment Fund for Education (LPDP) has financed education, research and other initiatives for over a decade through a sustainable endowment model, with a fund size of Rp 154 trillion.
However, translating the vision of a DAD into concrete impacts will not be easy. Several design and implementation challenges in the current regulatory framework may constrain its long-term goals.
The regulatory design of a DAD is inherently exclusive. Article 73 of PP 1/2024 restricts DAD formation to local governments with high or very high fiscal capacity that have also met mandatory basic service obligations. Based on data from the Fiscal Balance Directorate General, of 546 existing regions across the nation, only 168 regions (30.77 percent) will be eligible to form a DAD. This limitation raises the risk of deepening horizontal inequality between regions.
