## 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](https://www.imf.org/en/publications/technical-assistance-reports/issues/2024/03/20/indonesia-technical-assistance-report-subnational-government-endowment-funds-imf-technical-545733)

## Other formats

- [Markdown version](/en/publications/technical-assistance-reports/issues/2024/03/20/indonesia-technical-assistance-report-subnational-government-endowment-funds-imf-technical-545733/index.md)
- [Structured JSON version](/en/publications/technical-assistance-reports/issues/2024/03/20/indonesia-technical-assistance-report-subnational-government-endowment-funds-imf-technical-545733/index.json)
- [Bundle manifest](/en/publications/technical-assistance-reports/issues/2024/03/20/indonesia-technical-assistance-report-subnational-government-endowment-funds-imf-technical-545733/bundle-manifest.json)

## Bibliographic details
- Published: March 20, 2024
- Series: Technical Assistance Reports
- DOI: https://doi.org/10.5089/9798400268915.019

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### 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.

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## Content in this bundle

- **Tarea2024017**
  - [Tarea2024017 (Markdown version)](/-/media/files/publications/tar/2024/english/tarea2024017.pdf.md){rel="alternate" type="text/markdown"}
  - [Tarea2024017 (PDF)](/-/media/files/publications/tar/2024/english/tarea2024017.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/technical-assistance-reports/issues/2024/03/20/indonesia-technical-assistance-report-subnational-government-endowment-funds-imf-technical-545733_