Prabowo Subianto's Fiscal Recentralization

August 10, 2026 | 10:22 am

The central government’s cutting of regional budgets is a violation of the law. It stems from a centralist mindset.

SUMITRO Djojohadikusumo once rebelled against Indonesia’s first president, Sukarno, believing the central government was treating provinces outside of Java unfairly. Now, his son—President Prabowo Subianto—is instead centralizing regional policies and budgets, leaving regency, city, and provincial governments in dire straits.

In order to fund Prabowo’s priority programs, the central government is cutting transfer funds to the provinces by up to 25 percent and reallocating 58 percent of village funds from the 2026 State Budget to the President’s flagship programs. 

This cutting of hundreds of trillions of rupiah follows last year’s budget reduction, with the funds being reallocated to the free nutritious meal (MBG) project and the red-and-white cooperatives—initiatives that are neither urgent nor guaranteed to yield results. 

Facing depleted financial resources, local governments are struggling to repair damaged roads and pay government workers. The central government acknowledges that 79 regions are currently facing fiscal difficulties. North Maluku, for instance, can no longer afford to pay their employees. Other regions are also raising alarms as public construction work stalls and public services are disrupted. Local governments are further strained because the central government is also withholding revenue-sharing funds. 

Meanwhile, villages are unable to carry out their public development plans in accordance with community wishes, as village funds have been drastically reduced. Many villages report that local infrastructure development has stalled or even been abandoned, while integrated service posts and other services are struggling to function. 

Villages will bear the consequences of the establishment of the red-and-white cooperatives for years to come. Village funds will be subject to deductions for at least six years so that Agrinas Pangan Nusantara—the entity managing the cooperatives—can make installment payments on the Rp240 trillion debt owed to the bank that provided the capital for the cooperatives’ construction. Villages are effectively being forced to establish these cooperatives, as the deductions from their village funds could be even steeper during the second disbursement phase if they do not comply.

Prabowo has justified slashed regional budget allocations by arguing this is better than losing the funds to corruption. While such a centralist view might initially appear reasonable, the reality is far more complex than Prabowo’s statement suggests. If he truly intends to eradicate corruption, he should establish effective preventive systems while continuing to crack down on corrupt officials. Moreover, much of the corruption involving regional heads does not stem from the direct theft of state funds, but rather from bribery and extortion.

The reduction in transfers of regional and village funds reflects a trend of fiscal recentralization under the Prabowo administration. Fiscal recentralization entails not merely diverting regional funds for central government expenditures, but also strips regions of their authority to set their own budget priorities. Programs essential to local communities disappear, replaced by initiatives dictated by the central government in Jakarta. Consequently, participatory budgeting at the local level—a hallmark of regional autonomy—is being curtailed.

In other words, Prabowo is reshaping the fiscal relationship between the central and regional governments through budget cuts. He is reducing the level of fiscal discretion available to local governments and village administrations while increasing central government spending on his flagship projects. 

Regional governments have traditionally served as the frontline for public service delivery. If the functions under regional jurisdiction face budget shortfalls, public services will be disrupted, and local communities will be denied their rights. 

The price which must be paid to fulfill Prabowo’s ambitions is too high. When villages cancel infrastructure projects, economic activity is lost as well. It is widely understood that village funds serve as a stimulus for local economies. If their budgets are reduced, financial turnover slows in the villages. In other words, Prabowo has caused regional fiscal crises and sluggish village economies.

In addition to defying the will of the people, Prabowo is inadvertently acting in opposition to the law governing financial relations between the central and regional governments. It is unconstitutional to undercut regional rights in this manner.

Sumitro Djojohadikusumo historically opposed the government because he believed Sukarno’s political and economic policies were resulting in inequality between the central and regional governments. Today, the administration led by Sumitro’s son has come to resemble the very regime his father once opposed.

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