The second day of the Year-End Webinar held by the Democracy and Local Governance (DeLOGO) Cluster of the Faculty of Administrative Sciences, Universitas Indonesia (FIA UI), discussed how the future of regional autonomy in Indonesia is strongly determined by fiscal capacity and the quality of local leadership. The discussion among the speakers highlighted the fact that, to date, the majority of regions remain in a fragile fiscal condition and are highly dependent on transfers from the central government.

In her presentation, a representative of the Ministry of Home Affairs, Siti Chomzah, revealed that around 90 percent, or 493 regions in Indonesia, still have weak fiscal capacity. This condition is expected to become more challenging in line with the planned adjustment of Intergovernmental Transfers (Transfer ke Daerah/TKD) in 2026, which is projected to decrease by approximately 19.9 percent compared to the previous year. According to her, this adjustment is part of national fiscal consolidation as well as an effort to encourage regions to improve governance and reduce dependence on central government funds.

The issue of fiscal independence emerged as the main thread throughout the discussion. The Chair of Committee IV of the Regional Representative Council (DPD RI), Ahmad Nawardi, emphasized that regional autonomy will not be solid without a strong fiscal foundation. He stated that regional development visions would be meaningless if they were not supported by adequate financing capacity. Meanwhile, Ahmad Lutfi offered a more realistic approach by introducing the concept of “fiscal flexibility,” considering that not all regions have equal potential to achieve full fiscal independence.

The adjustment of TKD in 2026 also sparked critical discussions regarding its impact on public service delivery at the regional level. Some participants assessed that reducing transfers without strengthening local institutional capacity could potentially weaken the ability of local governments to meet basic public needs. Responding to this concern, the speakers stressed the importance of a measured transition strategy so that fiscal consolidation does not come at the expense of public service quality.

In addition to relying on Local Own-Source Revenue (Pendapatan Asli Daerah/PAD), the webinar also discussed financing innovations as alternative means of strengthening fiscal capacity. Various instruments such as regional loans, municipal bonds, and regional sukuk were considered to be strategically utilized, particularly for financing productive infrastructure with revenue-generating potential. Nevertheless, the speakers agreed that the principles of prudence and fiscal sustainability must remain the main guiding framework in managing regional debt.

From a governance perspective, the issue of local leadership received serious attention. Rahmat Yananda emphasized that regional autonomy is a complex or wicked problem that cannot be resolved through a single approach. In an environment filled with uncertainty, adaptive and collaborative leadership, as well as place-based approaches and co-governance, were considered increasingly relevant in addressing regional development challenges.

The discussion also touched upon the phenomenon of recentralization, which is perceived to persist through regulatory and fiscal instruments. Several speakers warned that this tendency must be balanced with strengthening regional capacity so as not to weaken the spirit of decentralization. Constructive dialogue between the central and local governments was viewed as essential to maintaining a balance of authority within the framework of the Unitary State of the Republic of Indonesia.

As a follow-up, the Ministry of Home Affairs was encouraged to utilize fiscal incentives as strategic instruments based on tangible regional performance. Local governments are expected to accelerate the optimization of PAD through tax and retribution digitalization, restructuring of regionally owned enterprises (BUMD), and improving spending efficiency. Meanwhile, the DeLOGO FIA UI Research Cluster is committed to continuing studies and formulating policy recommendations to strengthen regional autonomy and fiscal independence through more contextual and collaborative approaches.

The DeLOGO Year-End Webinar reaffirmed that strengthening regional autonomy is not merely a matter of regulation and budgeting, but also concerns leadership, governance, and the courage to innovate for the welfare of communities in the regions.