Autonomy won't affect debt repayment: Experts

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)