Prof Telisa Aulia Falianty Urges Review of Regional Transfer Fund Cuts

JAKARTA, Investortrust.id — Prof Telisa Aulia Falianty urges the government to review large scale cuts to regional transfer funds if Indonesia is serious about lifting economic growth toward 8 percent, strengthening rural UMKM, creating jobs, and sustaining purchasing power on Friday, Jan 16, 2026 in Jakarta. She said tighter central fiscal space should not come at the expense of regional economic engines.

Speaking at the Global and Domestic Economic Outlook 2026 forum hosted by Kadin Indonesia, Telisa said sharp reductions in transfers to regions risk weakening local government capacity to drive growth. She stressed that regional economies remain highly dependent on transfers from the central government.

“We propose that the government reconsider the massive cuts to regional transfer funds, including the reduction of fiscal incentive funds by up to 70 percent,” Telisa said. “High performing regional leaders usually receive incentives, so if those incentives are cut by 70 percent, will good regional leaders remain motivated?”

Telisa warned that fiscal tightening at the regional level could reduce development spending and weaken programs that stimulate local economies. Regions with high dependence on central transfers would be the most affected, limiting their ability to maintain purchasing power, expand basic services, and support economic activity.

She acknowledged government assurances that national priority programs are intended to strengthen regions, but said the key issue is ensuring real multiplier effects outside Jakarta. “We must make sure regions are involved,” she said. “For example, in nutrition service units and vendors, if we want the funds to have regional impact, local businesses must be included, otherwise the multiplier effect in the regions will be small.”

Telisa also highlighted additional fiscal pressure from natural disasters, citing estimates by the Center of Economic and Law Studies that the economic impact of floods in Sumatra could reach Rp 68.67 trillion, or about 0.29 percent of GDP. She said the figure was not an official government statistic but served as a temporary reference due to limited comparative data.

Beyond economic losses, rehabilitation and reconstruction needs were estimated at around Rp 77 trillion, further tightening fiscal space. “The state budget is already operating in a narrow space,” Telisa said. “Fiscal space in 2025 to 2026 is relatively limited, compounded by disaster impacts.”

She argued that post disaster recovery cannot rely solely on the state budget and called for alternative financing through international assistance, partnerships, and social funding such as corporate social responsibility programs. Telisa said past disaster recovery efforts showed the importance of diversified funding sources.

From a macro perspective, Telisa noted that disaster affected regions contribute around 22 percent of national GDP, creating downside risks to 2026 growth projections. “How much will the 5.4 percent growth target be disrupted by disasters? There is a downside risk,” she said.

She also warned of rising inflation in affected regions, citing inflation rates of 6.71 percent in Aceh, 4.49 percent in North Sumatra, and 5.15 percent in West Sumatra. According to Telisa, elevated inflation could erode purchasing power and slow local recovery, requiring faster and more targeted policy responses.

Telisa reiterated concerns over the planned 70 percent cut in regional fiscal incentive funds, which she said play a key role in encouraging healthy competition and better public services among regions. “In the state budget law, fiscal incentive funds are set to be cut by 70 percent, and this is a major concern,” she said.

She urged that national priority programs, including free nutritious meals, the three million housing program, and village and fisheries cooperative initiatives, be designed with meaningful regional involvement. According to her, the success of national programs depends heavily on local execution capacity and local economic strengthening.

Telisa also touched on future regional political governance, including discourse around local elections, calling for holistic and research based policy design. “The hope is that studies on this issue are conducted calmly, with strong research and broad stakeholder involvement,” she said. “The goal is shared welfare, so that regional autonomy remains strong and does not disrupt regional economic growth.”