The revision of Government Regulation Number 12 of 2019 concerning Regional Financial Management is currently being drafted by the Ministry of Home Affairs. This revision is very important to encourage performance-based budget allocation, especially related to environmental issues. Along with the budget efficiency announced by the central government in 2025 through Presidential Instruction (Inpres) Number 1 of 2025, strengthening regional financial assistance regulations is a crucial step.
Fitria, Executive Director of PATTIRO in her remarks at a limited discussion entitled Strengthening the Policy on Special Performance-Based and Sustainable Financial Assistance in the Revision of PP Number 12 of 2019 organized by PATTIRO supported by The Asia Foundation on February 20, 2025 revealed that this regulation does not adequately regulate funding for environmental issues. “Moreover, this year (2025) there is a big challenge to ensure that environmental funding remains in the APBD amidst budget efficiency,” said Fitria.
Alam Surya Putra, Director of the Environment and Climate Action Unit TAF Indonesia, also emphasized that the budget efficiency policy that has been set by the government will affect budget allocation and transfer of regional financial assistance. Currently, various types of transfers from the center to the regions, such as Revenue Sharing Funds (DBH), General Allocation Funds (DAU), and Village Funds, are already performance-based. However, inter-regional transfers or Financial Assistance (Bankeu), especially Special Financial Assistance (BKK), have not adopted a performance-based approach.
The allocation of BKK that is not yet performance-based raises transparency and efficiency issues, especially with the weakness in the legal basis that still relies on the temporary Regional Head Regulation (Perkada). The Perkada is legally weak because it is valid in the short term and is prone to political changes.
PATTIRO proposed that performance-based BKK be included in the revision of PP Number 12 of 2019. Sumyati, PATTIRO Program Officer, explained that Law No. 1 of 2022 concerning Financial Relations between the Central Government and Regional Governments mandates performance-based transfers for community welfare. Based on PATTIRO’s study, fund transfers from the center to the regions are already performance-based, such as DBH, DAU, DAK, and others. However, for inter-regional transfers such as Financial Assistance from the Provincial Government to the Regency/City or to the Village, it is not yet performance-based. The selection of Bankeu is due to two things. First, the lack of transparency in the allocation and distribution mechanism of BKK which is not yet performance-based. Second, the performance-based BKK that has been implemented still has a weak legal umbrella.
The implementation of performance indicators in the distribution of BKK can encourage an increase in the quality of regional government performance, especially in public services. To encourage sustainability, regulations on the arrangement of BKK should not only be through Perkada, but also Regional Regulations (Perda).
“For example, since 2018, more than 40 regions in Indonesia have implemented ecological performance-based fiscal transfers through the Ecology-based Provincial Budget Transfer (TAPE), Ecology-based District Budget Transfer (TAKE), and Ecology-based Village Budget (ALAKE) schemes.” In terms of impact, this scheme has succeeded in encouraging a circular economy in North Kalimantan, which improves community welfare and regional financial governance. This scheme has also been accommodated in Permendagri Number 15 of 2024 concerning Guidelines for the Preparation of the 2025 Fiscal Year APBD, explained Sumyati.
In line with this, Rino Rio, Regional Budget Planning Analyst for Regional Finance at the Ministry of Home Affairs, supports PATTIRO’s proposal for performance indicators in the distribution of BKK. “This is in line with the Fiscal Incentives that exist at the center of the Ministry of Finance. Previously, fiscal incentives were given based on audit opinions and the determination of the previous year’s APBD. Currently, fiscal incentives are given based on regional performance in supporting national programs,” said Rino. He also added that the purpose of the revision of PP Number 12 of 2019 is to simplify regulations and ensure that the APBD is more efficient and focuses on regional priority spending.
IPDN academic, Prof. Dr. Djohermansyah Djohan, MA, added that the revision of PP Number 12 of 2019 is important because it is outdated and needs to be adjusted to regulatory developments. According to him, since 2019, many new laws have affected regional finances, especially the HKPD Law. In addition, the current Prabowo administration emphasizes budget efficiency, which has an impact on regional financial management.
West Nusa Tenggara (NTB) Province has experience in implementing a performance-based BKK scheme for environmental issues, where environmental indicators are chosen to respond to the challenges of climate change and deforestation in regencies/cities in NTB Province which have resulted in disasters. Secretary of the Regional Finance and Asset Management Agency (BPKAD) of the West Nusa Tenggara Provincial Government, Bowo Susatyo, shared the experience of the NTB Province in organizing the Environmental Care Village Competition. The competition involved more than 1,000 villages, with the winners receiving rewards for environmental funding.
“There is already a Governor’s Regulation (Pergub) Number 60 of 2022 which regulates the procedures for budgeting, implementation, and reporting of financial assistance. The main focus is on the environment, but also supports mandatory regional government affairs, such as education and health; public services and governance; environmental and disaster management; and gender mainstreaming and social inclusion,” explained Bowo.
Finally, Dira Ensyadewa, Young Expert Planner at the Directorate of Regional Revenue, Regional Finance, Ministry of Home Affairs added that in the revision of PP Number 12 of 2019, the regional income aspect must also be considered. Many regions that set revenue targets are not based on real potential, so they often experience budget deficits. Therefore, improvements in regional cash management are very important so that regional budgets are healthier and more efficient.
Overall, the revision of PP Number 12 of 2019 is an important momentum to strengthen regional financial assistance regulations, encourage transparency, and create more efficient and sustainable performance-based regional financial management.
