Regional Governments Prepare to Issue Bonds, KPPOD: Maturing Fiscal Decentralisation

Jakarta, CNBC Indonesia - The Regional Autonomy Monitoring Committee (KPPOD) considers the increasing number of regional governments preparing to issue regional bonds or municipal bonds as a form of maturing fiscal decentralisation.

KPPOD Executive Director Armand Suparman said this is because the alternative development financing instrument can provide room for regional governments to finance their investment needs independently.

“That regional bonds are part of deepening the financial market and maturing fiscal decentralisation,” Armand said, quoted from his statement on Thursday (20/8/2026).

Therefore, when a number of regions begin exploring the issuance of regional bonds, such as DKI Jakarta, West Java, Bali, and West Sumatra, the central government, according to him, can be present to oversee and facilitate the process.

DKI Jakarta itself is already preparing to issue regional bonds worth Rp 5.6 trillion in two stages, namely Rp 4.2 trillion in 2027 and Rp 1.3 trillion in 2028.

Meanwhile, West Java is targeting the issuance of regional bonds worth Rp 900 billion, although there are no detailed plans to date.

West Sumatra has not yet announced a value, but is merely designing the issuance of regional bonds in the form of sukuk, or sharia-compliant debt securities. Likewise, Bali is still in the stage of opening up space for issuance.

“We see it in the context of how fiscal decentralisation continues to develop and how regions can have alternative financing to fund their investment needs,” Armand said.

Armand stressed that KPPOD does not question the central government’s prudential principle in granting approval for regional bond issuance. He acknowledged that the government still needs to ensure that the instrument does not disrupt regional fiscal health or national fiscal stability.

However, according to him, the prudential principle should be realised through a measurable and transparent testing process, not by building a perception that regional bonds are instruments to be avoided or risky for future regional governments.

“Perhaps in the context of prudence, the central government is certainly fine to remind. But it needs to be explained to the public about that prudence. Do not let the reason of prudence actually create an impression of distrust in regional governments and become inconsistent with the appeals that have been conveyed to other regions,” Armand said.

KPPOD assesses that the central government has a strategic position to build sound regional bond governance.

The Ministry of Home Affairs, he said, can test the conformity of bond issuance with the regional budget (APBD), the Regional Medium-Term Development Plan (RPJMD), fiscal capacity, and regional development priorities. Meanwhile, the Ministry of Finance can ensure aspects of fiscal health, repayment capacity, and the sustainability of regional financing.

“If the regional government has met the requirements, both from the legal, fiscal, administrative, and project feasibility aspects, the central government should not hinder. It should instead oversee and test. In this case, the central government should act as an enabler, not a gatekeeper,” he said.

According to Armand, the central government also needs to provide clear parameters for regions that wish to use bond instruments. This can provide certainty for regional governments regarding the standards that must be met from the beginning of the issuance process.

He gave an example: if a project is deemed to have long-term risk, the government needs to explain the risk parameters used. Likewise, if the issuance design is deemed not in accordance with provisions or the project is considered unfeasible, the basis for the assessment must be explained objectively.

“If they are pessimistic, come out with objective parameters. If the project is risky for the long term, what are the parameters? If the issuance design does not comply with the rules, the justification must be clear. Or if the project is deemed unfeasible, what is the measuring instrument?” Armand said.

For KPPOD, this clarity is important not only for Jakarta’s interests, but also for other regions that have fiscal capacity and investment needs.

“The central government should be in a position of supporting or even facilitating, not becoming an obstacle with statements that could make regions outside DKI not dare to take this step,” he said.