Delegated but Not Discharged: Prudential Recognition and the Contingent Liability of Delegated PPP Infrastructure Guarantees in Indonesia

Indonesia channels PPP guarantees through a state-owned guarantee enterprise to ring-fence the state balance sheet, yet in early 2024 commercial lenders still asked for the Minister of Finance’s signature, and officials acknowledged its guarantees had not substantially lowered project cost of funds. This study asks why lenders report treating an enterprise-issued guarantee less favourably than a ministerial one, why commitments to strengthen the guarantor were not expected to close that gap, and what follows for reporting the state’s contingent liability. An abductive single-case study drew on nine focus group discussions held January–March 2024 with 24 informants, read against then-current regulations and, as subsequent corroboration, Regulation 68/2024 and 2025 audited financial statements. Commercial lenders described prudential recognition, whether supervisory collateral-eligibility rules admit the instrument, as decisive for classification and, by their account, pricing; a multilateral creditor reached the same verdict through the guarantor’s status, holding that even unlimited liquidity support would not change its assessment. Guarantee scope and payment path further distinguish the instrument. Claims paid on two water projects did not transfer credibility to later instruments. Subsequent regulation consolidated co-guarantee, restoring the ministerial signature. The 2025 statements disclose guarantee exposure but no provision against Rp4.2 trillion of potential claims, about Rp1.0 trillion on PPP projects, while the central government reports no guarantee obligation. Loan spreads and expected losses are not observed. The study proposes prudential recognition as a determinant of guarantee value outside the guarantee relationship, and finds that delegation relocated recognition without relocating exposure.