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.