Regions to be allowed to issue bonds

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.