Indonesia: Technical Assistance Report-Subnational Government Endowment Funds
Technical Assistance Reports, March 20, 2024
Source details
- Canonical URL
- Indonesia: Technical Assistance Report-Subnational Government Endowment Funds
Other formats
Bibliographic details
- Published: March 20, 2024
- Series: Technical Assistance Reports
- DOI: https://doi.org/10.5089/9798400268915.019
Background and purpose
- The Indonesian authorities are exploring options for the establishment of subnational government endowment funds.
- The Ministry of Finance (MoF) has drafted regulations related to such endowment funds.
- Motivations and objectives for establishing an endowment fund at the subnational level diverge across various stakeholders.
- Clarity of the objectives and purpose of the endowment fund is critical for informing features of its architecture and ensuring alignment with national fiscal policy objectives.
Key findings
- Establishing endowment funds at a time of fiscal deficit entails a “borrowing-to-save” approach which is not optimal from a fiscal policy perspective.
- There is a misalignment between:
- the design of inflow and outflow rules,
- the endowment fund’s objectives,
- and the fiscal/economic context.
- The current draft MoF regulations restrict the investment policy to conform with the law on decentralization enacted in 2022.
- Regardless of the structure of the endowment fund, it needs to be fully integrated within the budget.
Design, fiscal considerations, and cost assessment
- The report emphasizes that the endowment fund should be aligned with national fiscal policy objectives.
- The report provides recommendations on:
- assessing the full cost of the subnational government endowment fund,
- the design and implementation of the fund.
- Integration within the budget is required irrespective of the endowment fund’s structure.
Regulatory observations
- The draft MoF regulations constrain the investment policy to be consistent with the law on decentralization enacted in 2022.
- The divergence of stakeholder objectives implies the draft regulations may need refinement to resolve misalignment between rules and objectives.
Recommendations and implementation guidance
- Clarify objectives and purpose of the endowment fund to inform architecture and policy design.
- Reassess the timing of fund establishment given the fiscal deficit and the “borrowing-to-save” implication.
- Align inflow and outflow rules with stated objectives and the broader fiscal/economic context.
- Ensure full budgetary integration of the endowment fund.
- Improve the draft MoF regulations to address restrictions on investment policy and to better reflect the fund’s objectives and fiscal context.
Content in this bundle
- Tarea2024017