Govt prepares debt management bill to prevent of loans

Rendi A. Witular, The Jakarta Post, Jakarta

With the amount of debt currently at an alarming level, a bill is being drafted by the government on debt management in a bid to prevent loans from being abused, such as for political purposes, an official has said.

Bank Indonesia's head of foreign debt, Dian Ediana Rae, said the bill would include clear-cut procedures in securing, channeling and monitoring loans, and the need for setting up a semi-independent agency to concentrate on dealing with loans.

"It will be designed to manage the country's loans with a high level of prudence, effectiveness and accountability. With the bill, we expect there will no longer be political reasons in seeking new loans," said Dian at a seminar on Wednesday, adding that financial concerns should be the only reason to request a loan.

The bill is being drafted jointly by representatives from the central bank, the Ministry of Finance and the National Development Planning Agency (Bappenas) and will be delivered to the House of Representatives for deliberation soon.

According to Dian, the bill should immediately be endorsed as it was deemed necessary by the law on international relations, and in view of the huge debts -- both foreign and domestic -- the country owes at the moment.

"The management of loans from upstream to downstream should all be meticulously regulated since the implications are huge for the public. Failure to provide a legal frame for managing loans would place the country in a debt trap," he said.

As of September last year, the government's foreign debt totaled some US$78 million as well as some $60 billion in domestic debt -- according to central bank data -- with some Rp 46 trillion ($5.11 billion) due to mature this year.

Many reports by research agencies and non-governmental organizations have alleged that debt embezzlement reached up to 30 percent of total loans, mostly due to lack of supervision and transparency by the government.

The massive debt is partly a result of the government's incompetency to effectively manage its loan resources, since the decision for obtaining loans are mostly based on political considerations rather than on long-term financial calculations.

"A government often seeks loans as the easiest way to secure its five-year term, which then burdens its successor, causing not only skyrocketing debt but also poor management," said Dian.

A lack of coordination between government ministries and agencies in managing debt also renders the disbursement of some loans ineffective and often cannot be translated into productive results.

Therefore, a special agency should be established to better coordinate and manage loans. The agency, Dian went on to say, should also be tasked with negotiating the interest rates of loans, setting up an efficient channeling mechanism, supervising loan disbursement and ensuring transparency reqarding loans.