Government will not let provinces go on borrowing spree

JAKARTA (JP): The central government will temporarily prohibit the newly-empowered regional administrations from raising loans from both overseas and domestic sources following a request from the International Monetary Fund (IMF), Coordinating Minister for the Economy Rizal Ramli said on Monday.

Rizal explained that the IMF was deeply concerned that the provincial, regency and municipal administrations would embark on a borrowing spree and could create a huge debt burden for the central government if they subsequently defaulted.

He said that the IMF's first deputy managing director Stanley Fischer had repeated the Fund's concerns to him during the recent World Economic Forum in Davos, Switzerland.

"We had previously agreed to bar regional governments from taking out overseas loans... But the IMF was not satisfied, they also insisted that the regional administrations be banned from domestic borrowing including the issuing of bonds and bank borrowing," Rizal told reporters at his office.

"We will only let them (the regional administrations) take out loans once the monitoring mechanisms have been set up," he added.

He said that he had asked the finance minister and Bank Indonesia to issue a joint circular to regional administrations in this regard.

Rizal did not provide further details.

Under the new autonomy law, launched earlier this year, regional governments are allowed to borrow to help finance their new administrative powers in managing their own social and economic affairs.

The IMF has repeatedly insisted that the regional administrations abstain from borrowing until a proper mechanism has been set up so as to avoid the same mistakes as were made by countries in Latin America.

Reports have said that the IMF has delayed the disbursement of its next US$400 million loan to the country partly due to the lack of assurances from the central government regarding this problem.

The IMF was supposed to disburse the loan in December last year. The Fund is providing around $5 billion in loans to help finance the country's three-year economic program, and, so far, it has disbursed around $1 billion.

Elsewhere, Rizal said that the IMF was also concerned about some points in the proposed amendment of the central bank law.

He pointed out, as an example, that one of the concerns was centered on the proposal to allow Bank Indonesia to purchase government bonds in the primary market.

The government has proposed a bill to the House of Representatives to amend the Central Bank Law.

The legislature is currently debating the bill, and is expected to have completed the process by the middle of this month.

There has been criticism that the amendment was merely designed to accommodate President Abdurrahman Wahid's determination to replace Bank Indonesia Governor Sjahril Sabirin and his deputies.

The current Central Bank Law guarantees Bank Indonesia's independent status.

Abdurrahman has demanded a major reshuffle at Bank Indonesia as part of the effort to rid the central bank of the corrupt practices of the past.(rei)