Government not to allow provinces to borrow funds yet

Government not to allow provinces to borrow funds yet

JAKARTA (JP): The finance ministry will not provide the
necessary government guarantees to enable provincial or regency
administrations to borrow funds this year, according to Director
General of Budget Anshari Ritonga.

Anshari said that the government wanted to first measure the
ability of the regions to repay debt before they would be allowed
to borrow.

"We don't expect the regions to borrow this year," he told
reporters at his office.

He said that the regions might start next year.

According to the new autonomy law, which gives greater
autonomy to provinces and regencies, the regions can borrow to
help finance their greater administrative responsibilities.

But creditors normally demand central government guarantees
before agreeing to provide loans to provincial or regency
administrations.

Anshari said that it was important to first measure the
ability of the regions to repay their loans because any default
would become the burden of the state.

The government launched the regional autonomy policy on Jan.
1, 2001. Under the new policy, the regions will now manage their
own social and economic affairs, but not foreign, monetary,
security and defense policies.

There have been concerns, particularly from the International
Monetary Fund (IMF), that the newly empowered provinces and
regencies would jump into a borrowing spree to help finance their
administrations which could provide a threat to the country's
overall economy.

The IMF has insisted that the regions should not be allowed to
raise borrowing directly as experience in other countries showed
that borrowing sprees by the regions had created a huge burden to
the overall economy.

However, the regions may be forced to initiate borrowing if
the government funds allocated to them is not enough to finance
their new administrative functions.

In fiscal 2001, the government has allocated a total of Rp
60.5 trillion (US$6.44 billion) in special funds to help the
country's 30 provinces and more than 300 regencies in financing
their greater administrative roles.

Anshari said that his office started to disburse the funds to
the regions on Wednesday.

Anshari said that regions with larger populations and less
wealth would receive more money.

He said that the densely populated East Java province received
the largest amount of the funding at about Rp 8.7 trillion.

He added that the newly created Bangka Belitung province will
get the lowest amount at about Rp 321 billion.

Some regions, particularly those with abundant natural
resources and which have contributed greatly to the state
coffers, have protested the relatively small amount funding they
received.

Some experts have said that the protests could become a
serious problem in the implementation of the new policy, which
was launched to help prevent disintegration of the country.

But Anshari said that the rich regions should realize the
autonomy policy allowed them to enjoy a greater share of income
from the natural resources.

Under the new policy, provinces and regencies will get 80
percent of revenue from the development of their natural
resources including mineral resources, 15 percent of revenue from
oil, 30 percent from gas, and 80 percent from forestry. (rei)