Regional administrations want to issue bonds for development financing

The Jakarta Post, Jakarta

Citing lack of funding sources, provincial and district administrations lobbied the People's Consultative Assembly (MPR) to push the central government to allow them to issue bonds as an alternative funding source for financing development programs.

Deputy chairman of the MPR's regional representatives faction Oesman Sapta Odang supported the regions' appeal.

"Despite its huge potential, economic development in the regions has been moving at a slow pace due to the lack of funding. So, this bonds issuance policy should be a breakthrough to bridge that gap," Oesman said over the weekend.

He was speaking at the official conclusion of a two-day seminar on the issue, which had been initiated by his faction late last week.

The seminar, officially opened by MPR Speaker Amien Rais, is the latest move by regions to pressure central government to ease the existing policy that bans regional governments from issuing bonds.

Local administrations have long demanded greater freedom to seek their own funding sources since they obtained autonomy power in 1999, to offset what they claim as "lack of financial commitment" on the part of the central government.

Only by being allowed to issue the regional bonds, they said, would regions be able to compete fairly with the central government in terms of economic development.

Consequently, Oesman said, the faction urged the government to accommodate this demand and give it its full support. The support could come in the form of a package of legislation, including a law on regional bonds.

"Such a law is necessary to ensure legal certainty for both investors and regions," he added.

The Ministry of Finance has long opposed the plan, citing the regions' unreadiness for such a policy as it requires a sound debt management scheme. Failure to control regions' debts could well bring about another round of financial crisis for the whole country.

Ministry director general for fiscal decentralization Makhmud Siddik earlier hinted that passage of the law could only occur in 2004 at the earliest.

Bank Indonesia Governor Sjahril Sabirin shared the same view, saying that the issuance of regional bonds was not an ideal policy at the moment, given that the country was already hugely burdened by debt.

"What this hugely indebted country needs is a good debt management program, because the huge debts have made investors perceive Indonesia to be a high-risk country in terms of investment," said Sjahril, also a speaker at the seminar.

He cited Brazil and Argentina as examples of how a bad debt management concept could result in financial disaster.

"Through decentralization, the local governments in these two countries also sought ways to accelerate their economies. It turned out that this was one of the main contributors to their economic crisis."

Under the current fiscal decentralization scheme, regional administrations, apart from obtaining a revenue share from their respective natural resources, also get a funding allocation from the central government's state budget, as a funding source.

Revenue obtained from natural resources like oil, gas, forestry and others are split between the central government and the producing regions under a revenue-sharing formula.

Oil and gas producing-regions get a 30 percent revenue split from gas, and 15 percent from oil. As for revenue from non-mining resources like forests and fisheries, producing regions retain 80 percent of the incomes.

Regional governments also receive funding allocations from the state budget: the general allocation fund, popularly known as DAU and the specific allocation fund or DAK. According to the law, the state budget must allocate 25 percent of revenue to DAU.