Locals to pay higher rates for loans

Local governments will have to spend more to repay their overseas loans channeled to them through the central government, with the later issuing a regulation that raises interest rates on such loans.

The policy aimed at reducing losses on part of the central government from the rupiah's volatility, and requires local governments to pay an additional 5.02 percent per year for U.S. dollar loans derived from foreign donors, a statement from the Ministry of Finance said on Tuesday.

Annual interest rates for dollar loans is usually between 3 percent and 20 percent.

Overseas debts in other currencies, including pound sterling, euro, Australian dollar and New Zealand dollar will have an additional interest rate of 5.02 percent annually imposed -- although the rate would still be subject to a premium swap mechanism against the U.S. dollar.

Based on the Intergovernmental Fiscal Balance Law, which was endorsed by the House of Representatives in September last year, local administrations are not allowed to raise money directly from overseas.

However, starting next year the administrations could seek funding sources domestically from bank loans or bond issues, after securing approval from the Minister of Finance. -- JP