Government to sponsor agency to rate regencies

Government to sponsor agency to rate regencies

Asip A. Hasani, The Jakarta Post, Yogyakarta

Minister of Finance Boediono said here on Saturday that the
government would sponsor an independent rating agency to assess
all local administrations in the country, in a bid to give
investors a better understanding before investing in the regions.

Boediono said that the agency would rate all autonomous
regions in Indonesia, the results of which would be published in
both the domestic and foreign markets.

"The results of the rating would help investors decide whether
to go to a particular region or not," Boediono told a seminar on
fiscal decentralization at Yogyakarta Sheraton Hotel,
participated in by regents and mayors from all over Java.

Boediono refused to disclose the rating agency, only saying,
"We are still sounding out what agency could do that."

The rating agency, he said, would examine the overall picture
in the regions and specific aspects of governing there, such as
financial management, transparency and other matters.

He noted that good governance would be one of the most
significant indicators that determined a region's rating.

"Just like companies, regions should also be rated in such a
way as to give guidance to investors," he said.

The rating results would also help the regions to market their
debts -- when time and the government allowed them to do so -- as
well as assist investors to determine whether they should buy
such debts.

Nevertheless, Boediono told the regents and mayors who
attended the seminar not to use their "legal right" to seek loans
until the national economy had recovered.

"For the time being, I hope that regional governments do not
seek loans, especially foreign loans, as our national economy
currently requires extra-prudent measures. Even the central
government won't seek loans unless absolutely necessary," he
said.

He warned that if regional administrations insisted on
borrowing overseas, it would not only affect their fiscal
standing but also the central government's fiscal sustainability,
as the central government would compete head-to-head with local
administrations.

Under Law No. 22/1999 on Regional Economy and Law 25/1999 on
Fiscal Balance, regional administrations are free to seek
financing facilities from foreign creditors and raise funds by
issuing bonds.

The government, following demands from the International
Monetary Fund, has imposed a ban on local administrations
borrowing money from overseas sources.

At the same event, director general of central and regional
government financial balance Machfud Sidik said that the central
government would not stop local governments from seeking foreign
loans, provided that they could meet certain conditions set by
the central government.

Machfud, however, did not elaborate on the conditions, but
said that regional administrations would obtain foreign loans
disbursed through the central government.

"And it will be the regions that will have to repay the
principal and interest on the debts," he said.