Autonomy won't affect debt repayment: Experts

JAKARTA (JP): The implementation of regional autonomy next year would not affect the central government's capacity to repay its existing foreign debts, according to experts on Tuesday.

Senior government officials and an economist said that the central government would maintain its capability to repay existing foreign debts, although much of its funding resources would be decentralized to the regions.

The head of the Bureau for Local Government Capacity Empowerment at the National Development Planning Agency (Bappenas) Max H. Pohan dismissed worries that regional autonomy would disable the central government's debt repayment capacity.

"The government can tell the foreign community that it's okay, and that regional autonomy will not lead us to default our debt payments," Pohan told The Jakarta Post on the sidelines of a seminar on foreign loans and regional autonomy.

Under the regional autonomy system to be introduced next year, provinces through to mayoralties would receive greater authority to manage their own affairs and obtain a larger share of the profits from their natural resources to finance development spending.

While foreign debts still amount to US$76.24 billion of the total $119.36 billion borrowed, the government must relinquish part of its funding resources to the regions.

Based on the 2001 state budget draft, the government expects to spend some Rp 21 trillion in foreign interest rate payments and another Rp 55.7 trillion in domestic interest rate payments.

As the local government will be able to obtain a larger share from their local sources, said Max, the central government's spending to provinces would decline.

"Only 25 percent of the state revenue would be spent on regional development," he said referring to the General Allocation Fund - funds allocated for the development of regions, which under the 2001 budget draft would amount to some Rp 56 trillion.

"The remaining 75 percent should be sufficient to cover debt repayments and other routine spending," he explained, adding that the country's natural resources would remain a large contributor to the central government's budget

Economist Pande Radja Silalahi of the Centre for Strategic and International Studies (CSIS) also assured that Indonesia would continue payment of its foreign debts despite the regional autonomy.

He said that repaying the existing foreign debts was not only the responsibility of the central government but also that of the regions.

"It's our debts, it's Indonesia's debt.... regions should share the payment if they claim to be part of Indonesia," he told reporters.

Speaking at the seminar, the head of the Bureau for System Analysis and Financing at the National Development Agency (Bappenas) Firmansyah Rahim said that regions could not receive direct foreign loans although the intergovernmental fiscal balance law, which will be effective next year, stipulates that they can raise foreign loans to finance their budget.

He said that the regions should raise the foreign loans through the central government or under the so called Subsidiary Loan Agreement mechanism.

"The SLA mechanism is the easiest way for the government and the House of Representatives to control the amount and usage of foreign loans," he explained.

However, he said, what remained unclear was the mechanism to choose the projects that regions would propose.

"The choice of selecting a project becomes a problem if the total suggested foreign loans that regions propose exceeds the national credit ceiling for foreign loans," he said.

Whereas according to Max, proper project evaluations were vital when channeling loans to regions.

"On a macro economic level, there is a limit on how much we can accept further loans, to a point that we must reject any new loans," he said.

Max said that most of the loans would probably be spent on the development of urban infrastructure and as such projects would be easier to evaluate.

"It (project evaluation) would follow simple banking principles. The donor cannot afford to not make any profit although it's only a soft loan, otherwise banks would go bankrupt," he explained.

This, he said, also calls for tight scrutiny on regional governments' revenue capacity.(bkm)