Ban on regional borrowings extended

The Jakarta Post, Jakarta

The government has extended a ban on borrowing by regional administrations until the end of 2002 to avoid a surge in public debt, the finance ministry declared on Friday.

The extension of the ban means local governments are barred from independently receiving loans from both domestic and foreign resources directly. They are allowed to borrow indirectly via the central government.

The ban was supposed to expire at the end of this year.

Under the new autonomy law and fiscal decentralization policy launched in 1999, provincial and regency administrations were given greater powers including the power to raise their own money to fund local development programs.

Regional administrations, particularly those with little natural resources, are under great pressure to seek external funding sources because funding assistance from the cash-strapped central government is very limited.

But there has been concern particularly from the International Monetary Fund that a rush by local administrations to seek massive, and perhaps unrepayable, loans could lead to a fiscal disaster.

The government then agreed with the IMF -- which is providing a multi-billion dollar bailout package for it -- to impose a ban on regional borrowing.

The finance ministry statement said that, taking into account the national interest, the ministry was entitled to take control of all loans made to local governments.

The government has planned to issue bonds to wealthier regions to obtain cash that can be diverted to areas with lack of natural resource wealth.

But the resource-rich regions are demanding a high interest rate for the bonds, which could create further burdens to the already strained state budget.