Regional administrations want to issue bonds for development financing
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.