Economist Intelligence Unit (EIU) Asia analyst Tay Qi Hang told The Jakarta Post on Wednesday that the new lending framework gave the central government more flexibility to finance local and state-led projects but blurred Indonesia’s “long-standing fiscal boundaries” between national and regional authorities.

“While it could lower borrowing costs and support infrastructure rollout, it risks undermining fiscal discipline and transparency if not tightly governed. In Indonesia’s decentralized context, it is a potentially risky shift rather than an outright questionable one,” said Tay.

The legal basis for the new scheme is Government Regulation (PP) No. 38/2025, which was signed by President Prabowo Subianto on Sept. 10 but only recently drew public attention.

According to the regulation, it is hoped the framework supports “cheaper national and regional development”, especially for infrastructure projects and other development programs carried out by regional administrations, region-owned enterprises and SOEs.

The regulation requires that the disbursement of state budget funds under the scheme be conducted “with risk management pursuant to the state’s financial capacity”, subject to assessment by the Finance Ministry.

Asked what the purpose of the regulation was, Finance Minister Purbaya Yudhi Sadewa said on Wednesday that regional administrations were often “short of money” at the end or start of a calendar year and “that’s what it’s for, to primarily make up for the short-term cash shortfalls”.