Regional Transfer Adjustments Should Ideally Not Create Side Effects for Local Governments

The adjustment of regional transfer funds (TKD) from the central government has had a tangible impact on hundreds of local governments. Not only are they facing difficulties in paying employee salaries, but many local governments are also struggling to build or repair regional infrastructure. Dozens of local governments have been forced to seek loans to overcome budget constraints for development.

Amidst the rising cases of corruption by regional officials, the central government’s policy to adjust TKD can be accepted and supported by various elements of society. Between 2004 and 2025, 201 regional heads were involved in corruption cases. Furthermore, as of late July 2026, 12 regional heads have been caught in sting operations by the Corruption Eradication Commission (KPK). Therefore, the TKD adjustment is necessary as a shock therapy for the regional bureaucracy.

Ideally, the adjustment of TKD from the centre should not create side effects or problems for the regions. However, former Finance Minister Purbaya Yudhi Sadewa previously revealed that many local governments faced budget shortages following the TKD adjustment. Approximately 490 local governments required additional funding from the central government to pay salaries and cover minimum operational needs.

The problems faced by many local governments do not end there. A significant number of local governments are struggling to develop and maintain regional infrastructure due to budget limitations. To address these constraints, dozens of local governments are seeking loans. In addition to loans from financial institutions, local governments are permitted to obtain loans from the State Budget (APBN) based on Government Regulation (PP) No. 38 of 2025. Many local governments are seeking loans because of low local original revenue (PAD), and the value of transfers from the centre is insufficient to cover large capital expenditure needs.

If the side effects have reached this level, it may be because the scale of the TKD adjustment is too extreme and the calculations were inaccurate. It can be argued that the calculations were inaccurate because the TKD adjustment from the centre is disrupting the financial management of hundreds of local governments, rendering them unable to pay salaries. The total value of TKD cuts as of 2025 was recorded at Rp 50.59 trillion.

For this year, after being cut by approximately 20 per cent to 24 per cent—around Rp 171 trillion—the TKD budget allocation in the 2026 APBN was set at Rp 693 trillion. With a reduction of this magnitude, provinces or regencies with low PAD will undoubtedly face serious problems. Consequently, in addition to seeking loans, many local governments are increasing and establishing new tax objects that place a heavy burden on local communities.

Recently, the initiatives of the Jakarta and North Maluku provincial governments have drawn significant attention. The Jakarta Provincial Government is finalising plans to issue regional bonds (Jakarta Bond) valued between Rp 5.2 trillion and Rp 5.6 trillion.

The plan is to draw funds gradually starting in 2027. This alternative financing method is being pursued because Jakarta requires funds to finance several long-term infrastructure projects crucial for its residents. These include the continuation of the Jakarta LRT Phase 1C (Manggarai-Dukuh Atas route), the construction of the Sumber Waras Regional General Hospital (RSUD), the development of retention ponds, reservoirs, and drainage facilities, as well as the construction of new school buildings and low-cost apartments.

This initiative by the Jakarta Provincial Government has certainly attracted attention. Among all provinces, Jakarta always records the highest PAD, primarily sourced from local taxes such as motor vehicle tax and land and building tax. As of 2025, Jakarta’s PAD reached Rp 51.22 trillion. However, the TKD adjustment has significantly impacted Jakarta’s finances. Jakarta’s TKD for 2026 was cut by Rp 16 trillion, causing the Jakarta Regional Budget (APBD) to shrink from Rp 95.35 trillion to Rp 81.32 trillion.

Previously, the Governor of North Maluku, Sherly Tjoanda Laos, proposed a regional loan of Rp 1 trillion to accelerate the development of roads and bridges across 10 regencies/cities. This acceleration is considered urgent to achieve regional connectivity in previously inaccessible areas and to address infrastructure inequality.

This loan initiative was prioritised because the TKD cut for North Maluku reaches Rp 800 billion in 2026. The loan is planned as a standby loan to be disbursed gradually to maintain regional fiscal space amidst budget pressures, and as an anticipation for further TKD cuts from the centre in 2027.

It is not only these two local governments seeking loans. Records from PT Sarana Multi Infrastruktur (SMI) indicate that 94 local governments have applied for loans to finance infrastructure projects. The central government also permits local governments to obtain loans from SMI. The repayment of these loans is instalment-based, using revenue sharing funds (DBH) which are part of the TKD from the centre.

The mechanism of local government debt repayment to SMI using DBH or reductions in TKD tends to continuously weaken local government finances. Building new infrastructure or repairing existing infrastructure is a continuous necessity. Both the central government and all local governments must build roads, bridges, and provide networks for clean water, irrigation, ports, and drainage. Other obligations include providing healthcare facilities, educational facilities/school buildings, electricity supply, public spaces, and digital infrastructure such as internet networks and telecommunications signals.

Various types of infrastructure require routine maintenance costs. Furthermore, natural factors, such as high rainfall and flooding, often damage many road sections, bridges, and drainage channels in both public and residential areas. Not to mention damage caused by other factors. As a comparison, the value of damage to infrastructure and public facilities in Jakarta due to unrest in August 2025 reached Rp 80 billion.

Another example involves community grievances that local governments must address. Throughout the period…