Ban on regional borrowings extended

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.