Regions may issue bonds next year
Regions may issue bonds next year
Rendi A. Witular, The Jakarta Post, Jakarta
Local administrations will be permitted to issue bonds and seek
loans from domestic banks starting next year, following the
issuance of the necessary ancillary regulations later this year.
The package of regulations is likely to be issued sometime
soon to help compensate for the current ban on local
administrations seek loans from abroad, with the exception of
Nanggroe Aceh Darussalam.
The central government's intentions were conveyed by President
Susilo Bambang Yudhoyono during his address to members of the
Regional Representatives Council (DPD) on Tuesday.
"It is important for me to emphasize that for reasons of
macroeconomic prudence and stabilization, for the time being
local governments will not be allowed to directly seek foreign
loans until such time as the necessary regulations for this have
been finalized," said Susilo.
Based on the Intergovernmental Fiscal Balance Law, which was
endorsed by the House of Representatives in September of last
year, local administrations are allowed to raise money
domestically, including through bond issues, pending the
completion of the package of regulations.
Several rich provinces, including Riau, East Java and East
Kalimantan, have urged the central government to speed up
the issuance of the regulations in order for them to be able to
issue bonds to finance their development projects, mostly
involving infrastructure.
The provinces say such financial freedom is essential as they
can no longer depend on the cash-strapped central government to
improve infrastructure in their regions.
Meanwhile, head of the Ministry of Finance's Economic,
Financial and International Collaboration Studies Agency, Anggito
Abimanyu, said the regulations would be issued later this year.
"We expect that local administrations will be able to issue
bonds and seek bank loans starting next year. This is to reduce
the disparity in the availability of financial resources between
the central and local governments," said Anggito.
It is expected that the final say on the value of bond issues
and loans will be in the hands of the central government.
The central government will also select rating agencies to
assess the risks involved, he added.
The regulation will also require local governments to comply
with the prevailing regulations, such as those set out in the
Capital Markets Law, and that the bonds be issued in rupiah.
Anggito also said that the central government would not
underwrite the bonds.
Elsewhere during his speech to the DPD, President Susilo
emphasized the need for local administrations to help the
government out in providing fuel subsidies by allocating part of
their revenues from the oil and gas sector for the development of
public services in poorer areas.
Under the law as it currently stands, a local administration
receives 15 percent of the oil revenue and 30 percent of the gas
revenue from the oil and gas it produces, while the central
government gets the remainder. In return, however, the government
has to shoulder the huge burden of paying for fuel subsidies.
"With high global oil prices, some oil and gas-producing
regions are receiving windfall profits. I hope they can share
these profits with poorer regions as the central government is
facing straightened circumstances as a result of higher fuel
subsidy spending," said Susilo.