JP/13/Bond

Sulawesi to issue regional bond

Following the revision of the 1999 intergovernmental revenue sharing law that allows regions to issue debts to raise cash, the provincial administrations in Sulawesi plan to sell a collective bond to help finance local development programs.

"We're planning to set up, what we call Celebes Fund. But we're still waiting for the government (implementing) regulations on this (bond) policy," Gorontalo Governor Fadel Muhammad said on Monday.

He said that in the first phase, the region would issue around US$50 million worth of bonds, with tenure ranging from seven to 15 years and interest rates higher than the market's average.

"It would be better if the funds are later used to build infrastructure, such as building rice-processing barns or hotels," Fadel said.

He added that the buyers could be either from foreign or local investors and that each province would have its share based on the initial arrangements.

A collective issue, said Fadel, would be much better and easier compared to an individual issue as investors would prefer buying bonds of a bigger size than smaller ones.

Besides Sulawesi, the provincial administrations of Riau and East Java are reportedly also making preparations to issue bonds.

Before issuing bonds, provinces and regencies must first obtain approval from their respective local councils and the finance ministry.

Regional bonds are not guaranteed by the central government, raising fears that possible default will adversely affect the whole economy. --JP