The Price of Prabowo’s Centralization

As the central government controls more resources, regional communities suffer

By: Ainur Rohmah

Indonesia’s experiment with decentralization is facing a tough test under President Prabowo Subianto. As Jakarta pulls billions of dollars in regional funding back to the center to finance his signature programs, local governments are left with less money to pay workers, maintain infrastructure and provide basic services.

The consequences are increasingly visible not only in local budgets but also on the streets.

In Banda Aceh on Aug. 15, demonstrators attempting to raise the Bulan Bintang, or Crescent Star, flag at the Baiturrahman Grand Mosque clashed with security forces. The protest came as Aceh marked the 21st anniversary of the peace agreement that ended an armed insurgency against Jakarta. Protesters criticized the government’s response to devastating floods in late 2025 and what they described as the incomplete implementation of the 2005 Helsinki peace accord that ended the fighting.

The same day, in Timika, Central Papua, demonstrators raised security and humanitarian concerns and called for a referendum. Some carried the Morning Star, a symbol associated with the Papuan independence movement. In West Kalimantan, the Borneo Raya flag was raised in Sanggau. Its supporters said it represented cultural identity rather than separatism, while demanding a fairer share of natural-resource revenues and greater control over local wealth.

The three protests have different histories and political demands, but they share a familiar grievance: resources are extracted from the regions, decisions are made in Jakarta and communities feel they receive too little in return.

Shrinking fiscal space

The government’s sweeping budget-efficiency drive has become a major source of frustration. Regional transfers were cut to Rp 693 trillion in the 2026 budget, down Rp 226.9 trillion, or 24.7 percent, from the previous year. The proposed 2027 allocation rises to Rp 735 trillion but remains below the 2025 level.

The savings are needed to finance Prabowo’s populism, including the Free Nutritious Meals program, Red-and-White Village Cooperatives, People’s Schools, Garuda Schools and food-security projects.

For local governments, however, the cuts are not merely an accounting exercise. Syafruddin Karimi, an economist at Andalas University, estimates that about 490 local governments need additional funding to meet payroll and minimum operating costs after the reduction in transfers. The pressure is compounded by about Rp 70 trillion in revenue-sharing funds that remain unpaid to hundreds of regions.

Local governments are consequently forced to choose between competing necessities. Salaries and essential services must be protected, while infrastructure, maintenance and payments to contractors can be delayed or cut. Some governments have turned to higher local taxes and fees to compensate, potentially increasing costs for residents and businesses.

The problem is particularly acute for regions with weak tax bases. Of Indonesia’s 546 autonomous regions, fewer than 10 percent have strong locally generated revenue. Most are heavily dependent on transfers from Jakarta.

That dependence was not accidental. Regional transfers were created as part of Indonesia’s post-Suharto decentralization after 1998 to give local governments the resources to perform responsibilities transferred from the central government and set their own development priorities.

Now, critics say, the system is moving in the opposite direction.

“The regions remain the location of development but lose control over the budget, project design, timing and contractors,” Syafruddin said. “They are left with responsibility for public services without commensurate fiscal authority.”

The distinction matters. The government argues that money has not disappeared from the regions because central government ministries continue to finance regional projects. But spending money in a region is not the same as giving the region control over it. A project designed in Jakarta leaves local governments with little say over what should be built, where it should go, who benefits or when it should be implemented. In effect, local governments become administrators of decisions made elsewhere.

Voices of protest

The move back to centralization, which was the norm under Suharto, has drawn objections from local officials and civil-society groups. Governors have previously confronted the Finance Ministry over the cuts. Two organizations, the Committee for Monitoring the Implementation of Regional Autonomy and the Indonesian Forum for Budget Transparency, have challenged the 2022 law governing fiscal relations between Jakarta and the regions before the Constitutional Court, which has yet to rule on the case.

They argue that changes to the transfer system, including adjustments made to finance central priorities such as the Free Nutritious Meals program, are narrowing the fiscal autonomy guaranteed to local governments by the Constitution.

Constitutional Court Justice Saldi Isra acknowledged the complaints during a hearing this month, saying regions were “crying out” over changes to the transfer system. He warned that annual political calculations in the state budget should not override the fiscal framework established by law.

“If political logic is allowed to defeat systems that have been firmly established,” he said, “the system itself loses its function.”

Prabowo has argued that money is better managed centrally than “left to be corrupted.” The argument reflects a legitimate problem: corruption in regional governments is real and has been pervasive. But centralization is not the same as fighting corruption. Much regional corruption involves bribery and extortion rather than the direct theft of budget funds. A more effective response would be stronger oversight, transparent procurement and targeted sanctions against inefficient or corrupt governments rather than reducing the fiscal autonomy of all regions.

The Institute for Development of Economics and Finance (INDEF) has warned that shrinking regional transfers and the restoration of central authority could weaken decentralization and deepen local governments’ dependence on Jakarta.

The Center of Economic and Law Studies (CELIOS), has raised another concern: shifting regional funds into large central programs could concentrate corruption risks on a much larger scale while making oversight more difficult. This has already occurred with a headline-grabbing corruption case centered on procurement for the free lunch program. CELIOS also estimated that food waste from the free meals program alone could reach Rp 1.2 trillion.

The government, meanwhile, says regional transfers remain essential to maintaining public services and has provided additional revenue-sharing funds to some regions, including disaster-hit Aceh. Finance Minister Purbaya Yudhi Sadewa confirmed that around Rp 20 trillion in additional funding has been disbursed to 490 local governments to help them meet payroll obligations for contractual civil servants. The move came after mounting protests from regional governments over the cuts.

The shrinking of decentralization

Economists argue that decentralization was designed to prevent excessive concentration of political and economic power in Jakarta by giving local governments both the resources and authority to set priorities in education, health care, infrastructure and other public services.

From that perspective, the growing role of the central government in determining how money is spent is difficult to reconcile with meaningful regional autonomy. For example, Prabowo initially put the free lunch program under the education budget, a move that was struck down by the Constitutional Court, which said meals are not legitimate education activities. As Jakarta controls more funding, selects more projects and determines their implementation, local governments risk being responsible for delivering services without having comparable control over resources.

Economists acknowledge that local governments need to strengthen their own revenue collection efforts. But they caution that fiscal independence cannot be built overnight. Regions with weak economies require years of investment, stronger human capital, better institutions and sustained economic development before they can reduce their dependence on central transfers.

They also point to Article 18A of Indonesia’s Constitution, which requires financial relations between Jakarta and the regions, as well as public services and natural-resource management, to be conducted “fairly and harmoniously.” For some experts, the current shift in fiscal authority risks upsetting that balance.

The government may succeed in directing more money toward Prabowo’s national priorities, economists say. But if that comes at the expense of local fiscal space and decision-making power, the consequences could extend beyond delayed projects and unpaid bills. They could erode something harder to restore: public trust.

The appearance of regional identity flags in Aceh, Papua and Kalimantan, they argue, should be understood as a symptom of political frustration when communities feel decisions about their lives are increasingly being made in Jakarta.