Government will not let provinces go on borrowing spree

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)