Locals to pay higher rates for loans

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