1 The Transformation of Budgetary Institution of Ministries/Agencies, The Perspective of Transaction Cost Analysis Purwanto Dirsun 1 , Sudarsono Hardjosoekarto 2 , Roy Valiant Salomo 3 purwanto21@gmail.com 1 , sudarsono72@ui.ac.id 2 , roy.v09@ui.ac.id 3 Faculty of Social and Political Sciences, Universitas Indonesia 1 , Faculty of Social and Political Sciences, Universitas Indonesia 2 , Faculty of Social and Political Sciences, Universitas Indonesia 3 Abstract. As the Indonesian socio-political landscape has changed since 1998, budgetary institutional reform is necessary to strengthen the link between planning and budgeting. This paper aims to answer the question of how the planning and budgeting institution should be transformed, based on transaction costs analysis. Soft Systems Methodology- based Action Research was applied to explore five alternatives for planning and budgeting institutions. The integration of planning and financial institution is recommended supposing that bounded rationality, opportunism, asymmetric information, and uncertainty in planning and budgeting is high. Keywords: planning and budgetary institution, transaction costs analysis, institutional transformation, soft systems methodology 1 Introduction Each country has a different planning and budgeting system, mainly depending on ideology, political and government system, natural resource availability, and human resource capability [1]. In developed countries, the function of preparing long-term, mid-term, or annual plans is distributed to several organizations or managed by technical ministries rather than centralized in one organization. However, in developing countries, the function is centered on a committee or ministries/agencies [1]. In its development, as a result of the economic crisis or the transition to a market-oriented country, several countries such as Nigeria, Liberia, South Korea, and India changed their planning and budgeting system and institution [2] [3] [4] [5]. Despite their importance from the perspective of public administration, the institution and coordination system between planning and budgeting functions are under-studied and poorly understood [6]. This research objective is to answer the question of how planning and budgeting institution should be transformed, from the perspective of transaction cost analysis The transformation of a budgetary institution in Indonesia Political reform occurring in 1998 has allowed institutional transformation in Indonesia, including the planning and budgeting institution, i.e the changes from input-oriented to outcome-oriented budgeting, from annual to medium-term expenditure framework, and from dual budgeting to unified budgeting. This reform aims to accomplish a Well Performing Public ICAS-PGS 2019, October 30-31, Depok, Indonesia Copyright © 2020 EAI DOI 10.4108/eai.30-10-2019.2299395