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)