Jakarta, Indonesia, 8 June 2023— Indonesia has begun to construct a subnational endowment fund known as Dana Abadi Daerah according to current law and regulation. Both the Law on Intergovernmental Fiscal Relations Between National and Subnational Governments (UU 1 of 2022) and the Government Regulation on Special Autonomy in Papua (PP 107 of 2021) have provisions for a subnational endowment fund.
The Center for Climate and Sustainable Finance at the University of Indonesia (CCSF UI) organized a focus group discussion with the Ministry of Finance’s Directorate of Fiscal Balance to address the potential and challenges of establishing regional endowment funds at the subnational level. The World Resources Institute (WRI) Indonesia, a leading think tank in sustainability subjects, joined this discussion.
The CCSF UI presented “Regional Endowment Fund for Indonesia’s West Papua: Macro-financial and Fiscal Links to Sustainability,” which explained the conditions of West Papua in light of climate change and broader sustainability issues that enhance the relevance of establishing a regional endowment fund in the province given the province’s critical global position for climate stabilization and nature conservation. The session addressed a number of conceptual ideas that might be relevant for subnational endowments. “Regional endowment funds are an important part of Indonesia’s efforts to reduce fiscal account, inflation, and exchange rate distortions caused by large and volatile commodity fluctuations, notably extractives and fossil fuels. On the other hand, the management of endowment fund assets likely has substantial impacts on fiscal, monetary, and exchange rate policies,” stated Sonny Mumbunan, Head of the University of Indonesia’s CCSF.
Sonny Mumbunan, Head of the Center for Climate and Sustainable Finance at University of Indonesia presented about subnational endowment fund from macrofinancial, fiscal and sustainability perspectives (Doc. CCSF UI, 2023).
The experts from the Ministry of Finance brought up plausible opportunities and challenges of establishing an endowment fund in subnational areas under special autonomy status like those in Papua and Aceh. The ministry was represented by expert staff that included Muhammad Hijrah, Mohamad Iwan Setiawan, and Radies Kusprihanto Purbo. During the discussion, they maintained the need for different (asymmetric) treatment in establishing endowment funds for regions that share such autonomous characteristics. Regulatory synchronization and alignment for this undertaking appear necessary.
Indonesia is currently formulating a Government Regulation on Fiscal Policy Harmonization, which includes provisions for a subnational endowment fund. It is a regulatory follow-up to the already-enacted law on intergovernmental fiscal relations. Subnational governments with autonomous status have begun to prepare for this by establishing subnational legislation. West Papua Province has established a Special Autonomy Regulation (Perdasus) on endowment funds. Aceh Province is contemplating establishing an education endowment fund based on its previous experience sending students to study abroad.
