Govt faces tough task in getting money from regions

Govt faces tough task in getting money from regions

JAKARTA (JP): The government admitted that it would be facing
tough challenges in persuading wealthier provinces and districts
to help finance the widening 2001 state budget deficit.

Director general for fiscal decentralization Machfud Sidik
said on Monday that the political process involved in the new
fiscal plan would be tedious as the regions had obtained autonomy
in managing their economic affairs.

"Of course it will not be easy, there has to be a shared view
(between the central government and the regions)," Machfud said
on the sidelines of a meeting with treasurers from various
provincial and district administrations held to familiarize the
officials with the new plan.

"We can't force the regions ... They have to discuss it first
with the local legislative council. We have to honor this
procedure," he added.

Meanwhile, one participant seemed to sum up the initial mood
of the richer regions against the new plan, saying: "They (the
central government) have been extravagant with their money, and
now when they are in deep trouble they turn to us for help. It
will not be that easy."

The current budget deficit could widen to a dangerous level of
6 percent of gross domestic product (GDP) or equal to around Rp
88 trillion (US$7.5 billion), compared to the initial projection
of 3.7 percent of GDP or around Rp 53 trillion, particularly due
to the plunge in the value of the rupiah against the U.S. dollar
and rising domestic interest rates.

To avoid a fiscal catastrophe, the government is planning
several measures under a fiscal adjustment package which
basically focus on streamlining spending and raising domestic
revenue. The government has said that it intends to maintain the
budget deficit at 3.7 percent of GDP, and to submit the revised-
budget plan to the House later this week to be debated.

Part of the program will be to persuade wealthier provinces
and districts to help finance the deficit through three measures.

The first is to ask the regions to exchange their share of the
general grant allocation funds, locally called DAU funds with
government bonds. Second is to ask them to purchase government
shares in state-owned enterprises. And third, to ask the
provincial and district administrations to purchase assets held
by the Indonesian Bank Restructuring Agency (IBRA), a unit under
the finance ministry.

Machfud said that the above measures would provide the central
government with around Rp 5.2 trillion in additional funds.

The DAU funds are allocated by the central government to
regional governments to help finance their greater administrative
power obtained from the new autonomy law launched earlier this
year.

The government has said that some regions with abundant
natural resources such as oil, gold, coal and timber have turned
out to be amply endowed, thus actually do not need the DAU funds,
at least at the initial amount allocated.

Under the new plan, the government wants to exchange the funds
with government bonds.

Machfud, however, said that early indications suggested it
would be difficult to persuade the rich regions to agree to the
bond swap plan.

"Many (of the wealthier regions) don't feel they are in a
condition of overabundance. They have a different calculation
(to that of the government's)," he said.

Some analysts also fear that the bond plan would create
greater pressure on the already saturated domestic bond market,
loaded with a massive amount of government bank recapitalization
bonds.

Machfud dismissed the concern, saying that the new bond issue
would be small in amount. He declined to provide the figure, but
some sources said that it would only be worth around Rp 2
trillion, compared to the bank recapitalization bonds of more
than Rp 430 trillion.

"I think the regions must also have a sense of crisis ... It
will be worse if we (the central government) have to cancel the
disbursement of the DAU funds," Machfud said, adding that his
office plans to meet with the top leaders of the wealthier
regions soon to convince them about the new plan.

"By purchasing bonds, they (the regions) will obtain interest
revenue and principal upon maturity. And they will also learn
about investing in bonds," he added.

The government is planning to privatize dozens of state
enterprises in a bid to raise around Rp 6.5 trillion in proceeds.
Under the new plan, the privatization target will be increased by
around Rp 2.2 trillion.

IBRA, which received various banking assets worth more than Rp
600 trillion when the government bailed out the domestic banking
sector in the aftermath of the 1997 financial crisis, is planning
to raise around Rp 27 trillion from the sale of assets. There
have been rumors that the government also plans to raise the IBRA
target by around Rp 2 trillion.

A government source said that if the above three alternatives
failed to be implemented, the government would have to cut down
spending by more than Rp 12 trillion, compared to around Rp 8
trillion of development spending streamlining under the new
fiscal adjustment package plan. (rei)