Tuesday, July 22, 2025 – The Public Governance and Administrative Reform (PGAR) research cluster of the Faculty of Administrative Sciences, Universitas Indonesia (FIA UI), held the third series of its Brown Bag Discussion (BBD) at the Smart Class, 3rd Floor, M Building. After 25 years of implementing decentralization in Indonesia, various reflections and projections have emerged regarding fiscal decentralization. Experts attending the discussion highlighted the successes, challenges, and the ideal direction for fiscal decentralization going forward, particularly in light of the enactment of the Law on Financial Relations between the Central and Regional Governments (UU HKPD).

The event featured prominent speakers including Askolani, MA, Director General of Fiscal Balance at the Ministry of Finance; Armand Suparman, Executive Director of KPPOD; Dr. Achmad Lutfi, regional finance expert and FIA UI lecturer; and Simon De Lay, Lecturer at the International Development Department, University of Birmingham. Joining online were Ardiyanto, Director of Regional Financing and Economy at the Ministry of Finance, and Cheka Virgowansyah, Director of Facilitation for Regional Heads and Regional House of Representatives (FKKPD) at the Directorate General of Regional Autonomy, Ministry of Home Affairs.

In his presentation, Simon compared Indonesia’s decentralization to international practices, noting that it is highly extreme. He emphasized that the success of decentralization depends heavily on the ability of local governments to manage information. Although fiscal decentralization should grant regions the autonomy to manage their finances independently, in reality many remain bound to central directives, indicating that fiscal authority is not yet fully decentralized. “Accountability is crucial so that the public can oversee it, but I doubt to what extent this significant authority has been optimally utilized by local governments,” he remarked.

Armand from KPPOD highlighted problematic budget politics and the minimal impact on public services, noting that local governments often act merely as “managers” for the central government, applying a symmetrical approach that does not align with diverse regional conditions. This has led to income disparities between regions and burdensome revenue-sharing formulas, making the exploration of asymmetric decentralization necessary.

Askolani from the Ministry of Finance acknowledged the need to improve the quality of regional spending and access to financing, as well as adjustments to property tax policies. Armand also pointed out that the implementation of UU HKPD has shown varying impacts on provincial revenues, underlining the importance of central government guidance. The synchronization of central and regional spending and the high proportion of mandatory spending were also flagged as issues limiting regional flexibility.

Cheka from the Ministry of Home Affairs stressed the need to address silos in public services and underscored the importance of Regional-Owned Enterprises (BUMD) as sources of revenue. Ardiyanto from the Ministry of Finance added insights on strategic budget allocations for quality spending. Dr. Lutfi from FIA UI emphasized optimizing the General Allocation Fund (DAU), revising the Regional Government Law to align with fiscal realities, and exercising caution in issuing regional bonds. Ardiyanto reminded that regional debt should be evaluated based on the benefits of projects for the community, while Armand noted that fiscal allocation should consider regional structures and characteristics, as horizontal capacity among regions remains suboptimal.

The discussion underscored the importance of an in-depth evaluation of Indonesia’s fiscal decentralization, focusing on strengthening regional capacity, budget flexibility, exploring asymmetric approaches, and enhancing central–regional synergy to achieve sustainable development.