Speakers deliver their vision of the sustainable economy model at the Investment Coordinating Board (BKPM) headquarters in Jakarta on Thursday. (JG Photo/Tara Marchelin)

Indonesian Districts Push for Sustainable Economy Model and Quality Investing


FEBRUARY 28, 2020

Jakarta. The Sustainable Districts Association, or LTKL, has introduced a sustainable economy model for improving the investment climate at the district level in Indonesia. LTKL is a collaboration forum established and managed by eight district governments to encourage sustainable development.

Beni Hernedi, the head of communication and information of LTKL and also the deputy district of Musi Banyuasin in South Sumatra, said that a sustainable economy approach is the right economy approach because it guarantees long-term sustainability at the district level.

"We strongly believe this concept is excellent and applicable in every district in Indonesia, especially because the district government changes every five years. How are we going to maintain our competitiveness? This approach ensures district-level sustainability for the long term, not only for five years," Beni said at the "Lestari Talk 2020: Unboxing Sustainable Economy" event in Jakarta on Thursday.

Beni said a sustainable economy approach balances the environment, social and economic aspects of policies and planning. According to him, the approach encourages district governments to set concrete goals, including increasing their GDP, improving budget efficiency, reducing poverty and unemployment rate or aiming for zero deforestation and peatland and forest degradation.


"A sustainable economy approach will help district governments to create a quality investment climate," Beni said.

Quality Investing

The regional promotion facilitation director of the Investment Coordinating Board (BKPM), Indra Darmawan, said the board's main priority is to invest in the long-term productive economy sector by growing partnerships with local entrepreneurs and offering added values for the economy.

"We want quality investing that's applicable at the district level or at any other level," he said.

Indra encouraged said that to maintain a sustainable economy for the long term, district governments need innovative economic activities. He also said every program has to be designed with environmental sustainability in mind.

"Sometimes, district governments don't want to create innovations because they're afraid of violating regulations. The reality is, the Government Ordinance No. 45 on incentives and easy investment in regional areas encourages them to make innovations," Indra said.

Ecological Budgeting Reform

One innovation that can already be implemented is an ecological budgeting reform. Joko Tri Haryanto, the Finance Ministry's fiscal policy agency researcher, said this reform is essential since budgets are usually allocated without the obligation for a performance report, which means there's no guarantee of a stable fiscal capacity.

"Some districts have good fiscal capacity, but we can't ensure it will always be stable. In some other districts, the capacity is low but the prospect is good," he said.  

Joko said the ecological budgeting reform could be embodied in a fiscal transfer scheme based on authority and performance for the protection and management of the country's forests and the environment.

The fiscal transfer scheme has three stages: ecology-based national budget transfers (TANE), ecology-based province budget transfers (TAPE) and ecology-based district budget transfers (TAKE).

"We've teamed up with The Asia Foundation to create this scheme. It will shift the paradigm for fiscal incentives," Joko said.