Decentralised budgets but centralised liabilities in Indonesia’s local government

Indonesia’s decentralisation dramatically expanded the responsibilities and budgets of subnational governments, but the volume of expenditure executed locally increasingly reveals less about the degree of choice exercised locally. This Viewpoint argues that Indonesia is experiencing a form of quiet recentralisation by mandate. Formal local authority remains substantial, yet the centre increasingly shapes the composition, timing, and administrative use of subnational resources. Drawing on decentralisation, place-based development, and intergovernmental finance scholarship, the article reframes local fiscal autonomy around discretionary fiscal space: the share of a local budget that remains available for meaningful local prioritisation after pre-committed expenditure is accounted for. Three mechanisms are distinguished: fiscal steering through specified-use transfers, administrative steering through nationally designed programmes, and liability steering through recurrent personnel commitments. These mechanisms need not be undesirable individually. The problem arises when their cumulative effect leaves elected local governments responsible for local development while controlling too little of the marginal budget to respond to place-specific needs. Indonesia therefore illustrates why decentralisation should be assessed not only by who spends public money, but by who can still decide what the marginal rupiah is for.