Indonesia’s Village Fund: An Important Lever for Better Land Use and Economic Growth at the Local Level

The report analyzes the governance and utilization of Indonesia's Village Fund, finding that while the fund has grown significantly and is a major revenue source for villages, it is predominantly spent on transportation infrastructure. The authors identify five key challenges—including a lack of technical capacity, misaligned planning between village and district levels, and insufficient regulatory guidelines—that hinder the fund's potential to support environmental conservation and sustainable land use. To address these, the report recommends integrating village priorities into district planning, empowering the Village and Community Empowerment Office, creating specific sustainability guidelines, adopting a 'negative-list' for spending, and introducing a sustainability variable into the fund's allocation formula.

• The Village Fund has grown rapidly in monetary value, increasing from IDR 20.7 trillion in 2015 to IDR 60 trillion in 2017, and now contributes more than 50% of total village revenue.
• Spending is heavily skewed toward infrastructure, specifically transportation, with 82.2% of funds committed to village development in 2015 and 89.8% in 2016. In observed villages, the fund has not been used for agro-industry infrastructure or environmental conservation infrastructure.
• There is a significant lack of harmony between village development plans and district-level planning, often resulting in budget overlaps and a failure to incorporate broader environmental goals into village spending.
• Village officials often lack the technical capacity, planning, and budgeting skills required to manage the fund, describing the associated paperwork as burdensome.
• The role of the Village and Community Empowerment Office (Dinas Pemberdayaan Masyarakat dan Desa) is currently limited to administrative facilitation and lacks involvement in substantive decision-making or technical guidance.
• A lack of detailed technical guidelines and regulatory basis at the district level makes village governments hesitant to fund sustainable land use or economic development activities, such as waste management.
• The Village Fund allocation formula was modified in 2018 to prioritize poverty eradication, including a 3% 'Affirmative Allocation' for lagging villages, providing a precedent for adding a sustainability variable to the formula.

APA

Sutiyono, G., Muluk, S., Mafira, T., & Rakhmadi, R. (2018). Indonesia’s Village Fund: An Important Lever for Better Land Use and Economic Growth at the Local Level. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2018/04/Indonesia’s-Village-Fund-_-An-Important-Lever-for-Better-Land-Use-and-Economic-Growth-at-the-Local-Level.pdf

Chicago

Sutiyono, Guntur, Saeful Muluk, Tiza Mafira, and Randy Rakhmadi. Indonesia’s Village Fund: An Important Lever for Better Land Use and Economic Growth at the Local Level. Climate Policy Initiative, 2018. https://www.climatepolicyinitiative.org/wp-content/uploads/2018/04/Indonesia’s-Village-Fund-_-An-Important-Lever-for-Better-Land-Use-and-Economic-Growth-at-the-Local-Level.pdf.

Wikipedia

{{cite report |last1=Sutiyono |first1=Guntur |last2=Muluk |first2=Saeful |last3=Mafira |first3=Tiza |last4=Rakhmadi |first4=Randy |title=Indonesia’s Village Fund: An Important Lever for Better Land Use and Economic Growth at the Local Level |publisher=Climate Policy Initiative |date=March 2018 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2018/04/Indonesia’s-Village-Fund-_-An-Important-Lever-for-Better-Land-Use-and-Economic-Growth-at-the-Local-Level.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{sutiyono2018indonesias, author = {Sutiyono, Guntur and Muluk, Saeful and Mafira, Tiza and Rakhmadi, Randy}, title = {{Indonesia’s Village Fund: An Important Lever for Better Land Use and Economic Growth at the Local Level}}, institution = {Climate Policy Initiative}, year = {2018}, month = mar, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2018/04/Indonesia’s-Village-Fund-_-An-Important-Lever-for-Better-Land-Use-and-Economic-Growth-at-the-Local-Level.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }