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)