Regions to be allowed to issue bonds

The Jakarta Post, Jakarta

The country's regional governments will be allowed to issue rupiah-denominated bonds once the current revision of legislation on regional autonomy and fiscal balance has been approved by the House of Representatives, according to a senior government official.

Director General of Fiscal Balance for the Central Government and Regional Administration Machfud Sidik said on Friday that local administrations planning to issue bonds had to meet certain requirements.

The administrations are required to publish their budget, for scrutinization by investors. Proceeds from the bonds must only be used for public projects that can generate cash. The budget must also place a priority on servicing the debt.

"The bottom line is that the local governments must meet capital market requirements like any other company raising cash from the public," Machfud said.

He said that if a region failed to comply with the requirement, the government would consider banning all regions, or just the offending one from issuing bonds again.

He said that during the last Cabinet meeting, ministers had essentially agreed on the draft of the amendment to the regional autonomy law and fiscal balance law. "Only minor corrections remain."

The two laws were issued in 1999 as a legal basis for the implementation of the government's regional autonomy policy, under which regions are given authority to manage their economic and social affairs. But as complaints were voiced about the poor implementation of regional autonomy policy, the government revised the two laws.

Despite the autonomy, regions have not been allowed to issue their own debt instruments to help finance their administrations on fears that massive borrowing by regional governments could create another financial crisis like that in Brazil.

"But this policy is only temporary; we can't stop completely the regions from borrowing," Machfud said.