Regions to issue bonds in 2006

Regions to issue bonds in 2006

The Jakarta Post, Jakarta

Regional administrations in the country can start issuing bonds
in 2006 to raise funds to help finance their economic development
programs, director general for fiscal decentralization Mahfud
Sidik said on Monday.

But Mahfud said that based on the State Finance Law, regions
were not allowed to sell the bonds overseas as they did not have
direct access to overseas borrowing.

"(Overseas borrowing) must be made through the central
government. We want to be prudent so as to avoid a crisis, like
what happened in Argentina," he said, referring to the debt
crisis suffered by Argentina due to the borrowing spree made by
its provincial and regency administrations.

Mahfud said the minister of finance would decide which regions
met the criteria to be allowed to issue bonds.

He said that when issuing bonds, the regional governments must
also meet the requirements set under the country's Capital Market
Law.

He did not provide details.

Following the introduction of the regional autonomy law in
2000, which provides greater administrative power for local
governments to arrange their economic affairs, provincial and
regency administrations have been trying to seek external
financing sources, including the possibility of tapping cheaper
funds from the bond market.

But the country's major lenders, particularly the
International Monetary Fund and the World Bank, have warned the
central government of the financial risks to the country if the
regions were immediately allowed to issue bonds.