The Legal Framework for Resolving Regional Loan Defaults in Indonesia

This study aims to examine and formulate an ideal legal framework for the resolution of regional loan defaults in Indonesia. The research focuses on identifying normative and implementational weaknesses in the mechanisms for resolving regional loan defaults. This research employs a normative juridical method with a statutory and conceptual approach, analyzed qualitatively based on the principles of the rule of law and justice. The findings reveal that the regulation in Law No. 1/2022 tends to place the entire default risk on regional governments without considering the varying fiscal capacities of different regions. Additionally, the mechanism for resolving non-governmental loan defaults is inadequate, creating legal uncertainty for creditors and exacerbating public service issues. The study also finds that the reduction of transfer funds in response to loan defaults could potentially disrupt the economic stability of regions. The conclusion of this study is that clearer and more comprehensive regulations are required to address the resolution of regional loan defaults. Amendments to Law No. 1/2022 and the implementation of the Suspension of Debt Payment Obligations (PKPU) mechanism could serve as solutions to restructure regional debts and maintain the continuity of public services.