Government to regulate borrowing by provinces

Government to regulate borrowing by provinces

JAKARTA (JP): The government is preparing a regulation to
ensure that provincial administrations control borrowing after
the regional autonomy and fiscal decentralization policy is
implemented early next year, according to Coordinating Minister
for the Economy Rizal Ramli.

Rizal said Monday that a regulation preventing provinces and
regencies from embarking on a borrowing spree had been included
in the regional autonomy policy, but the International Monetary
Fund has said it was not sufficient.

"We already have a regulation, but (the IMF says) it is not
strong enough. So we are modifying the regulation to stay out of
trouble," he told the press at a gathering to break the fast.

He said that the regional autonomy policy was part of the
focus of current discussions with the IMF reviewing the progress
of the country's economic reforms.

The IMF is providing the government with a multibillion dollar
bailout package to help finance the country's three-year economic
reform program.

The government plans to implement a regional autonomy and
fiscal decentralization policy on Jan. 1, 2001 in a bid to defuse
demands from rich provinces to separate from the country.

But concerns have been voiced, particularly by the IMF and the
World Bank, that the provincial and regency administrations would
embark on a borrowing spree to finance their administrations that
would cause serious problems to the overall economy.

Some Rp 80 trillion of the more than Rp 300 trillion spending
in the 2001 state budget is allocated to help finance the greater
administration authority of the provinces and regencies.

There have been cases in other countries where regional
autonomy and fiscal decentralization prompted provincial
administrations to make massive borrowings to finance their
greater administrative powers.

Rizal also said that another problem related to the
implementation of regional autonomy was the transfer of
responsibility for government employees currently working in
provinces and regencies.

He said that responsibility for these employees must be under
the respective regional administrations once autonomy was
implemented, but so far only 1.2 million of the employees have
been transferred to regional administrations.

"There are around 700,000 government employees (in the
provinces) who are still under the central government," he said.

Elsewhere, Rizal said that the government was planning to set
up an infrastructure policy committee whose main job was to
quickly resolve problems that occur with infrastructure projects
that involved private investors.

He said that the infrastructure committee was also tasked to
immediately draft a bill that would protect the interests of
long-term investors in the country.

Rizal explained that the development of infrastructure
projects was crucial to help expedite the country's economic
recovery.

He said that the government was determined to allow the
private sector to handle infrastructure projects that would have
high rates of return.

He said that projects with a low rate of return would be
financed by the state budget.

Rizal said that the government would accelerate the
development of infrastructure projects particularly in tourism,
agriculture and marine sectors.

He said that infrastructure development in the three sectors
were strategic to the economy because of the competitiveness,
potential for creation of jobs and high added value.

Rizal said that to attract investors to the various projects,
the government had demanded the related ministries to provide
policies and incentives that would promote a fair business
environment and competitiveness.

Commenting on the economy, Rizal said that the government was
optimistic that it would grow by more than 4.5 percent this year.

"We want higher economic growth," he said, explaining that the
achievement of good results would provide the administration with
more legitimacy.

In 2001, he said that the government was determined to
continue implementation of the various economic reform programs
to accelerate the economic recovery. (rei)