JAKARTA - The government considers strengthening regional economies to be an important factor in maintaining national economic growth, so that the synergy between ministries and agencies (K/L) at the central level needs to be strengthened to encourage more equitable economic development in the regions.
Deputy Minister of Finance Juda Agung, said there were three main challenges that were still faced in the development of the regional economy.
He added that the first challenge is the lack of optimal economic diversification in a number of regions, and there are still many areas that are highly dependent on the extractive sector such as mining and primary commodities, making them vulnerable to global price fluctuations.
"A number of regions are very dependent on the extractive sectors or the mining and primary commodity sectors, which tend to be vulnerable to price fluctuations. Therefore, regional economic diversification and innovation are key," he said at the 2026 National Conference on Regional Economic Development on Monday, May 25.
He explained that the second challenge relates to the quality of regional spending, which is considered not to be productive enough and most of the regional budget is still dominated by employee spending and goods spending, which reaches around 70 percent, while the portion of capital spending is relatively limited.
"In addition, regional spending is also often low at the beginning of the year and only accumulates at the end of the year. This reduces the impetus of the APBD (Regional Revenue and Expenditure Budget) for the local economy," he said.
Juda said the third challenge is the limited fiscal capacity of the regions, so that the dependence of local governments on transfers from the central government is still quite high because the local original income (PAD) is not optimal.
According to him, this condition has an impact on the slow implementation of various strategic projects in the region.
He also highlighted the low absorption of regional budgets due to the procurement process which takes time and the distribution of transfer funds which are not yet fully targeted.
"The absorption capacity of regional budgets is also often not optimal, transfer funds are not targeted and absorbed slowly, due to capacity and then procurement procedures that are relatively long. Of course, this ultimately reduces economic stimulus at the local level," he said.
Seeing this, the Ministry of Finance (Kemenkeu) has taken three steps to anticipate obstacles to the regional economy. First is to optimize the allocation of transfers to the regions.
To overcome these various obstacles, the Ministry of Finance (Kemenkeu) has prepared three strategic steps, namely, first, optimizing the allocation of transfers to regions, namely until April 31, 2026, the realization of transfers to regions has reached Rp. 256.8 trillion or about 37 percent of the total budget ceiling.
Meanwhile, the funds are used to support various basic service programs such as salary payments, BOS funds, Operational Assistance for the Implementation of PAUD (BOP PAUD), health programs, and teacher allowances.
The second step is to encourage creative financing for regional development through innovative and sustainable schemes. In this case, the Ministry of Finance has assigned PT Sarana Multi Infrastruktur (Persero) or PT SMI to accelerate the development of regional infrastructure.
Financing from PT SMI has been utilized for the construction of regional general hospitals, roads, bridges, tourism areas, and other infrastructure, namely until March 2026, the commitment of regional financing through PT SMI has reached IDR 37 trillion.
According to Juda, the financing scheme is effective in supporting the acceleration of regional economies since the beginning of the year because the installment of financing can be sourced from the revenue sharing funds received by the region from the central government.
Meanwhile, the third step is carried out through strengthening local original income by encouraging local tax modernization, data exchange between the center and the regions, strengthening local tax and toll administration, and increasing human resource capacity.
Juda emphasized that fiscal synergy between the central and regional governments must be carried out in an integrated manner, not only through the coordination of the State Budget and Regional Budget, but also by involving the private sector, the financial sector, and the business world to jointly encourage regional economic growth.
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