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)