Tue, 06 May 2003

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.