Regulation issued to prevent abuses in micro financing

Aditya Suharmoko ,  The Jakarta Post ,  Jakarta   |  Wed, 07/09/2008 10:48 AM  |  Business

The Finance Ministry has issued a new regulation increasing accountability of state funds disbursed as loans to small and medium businesses.

Ministry spokesman Samsuar Said said Tuesday the regulation categorized such funds, known as revolving funds, as state-sponsored working capital, which is subject to strict accountability.

"From now on, ministries or government agencies managing such funds are required to report them as revolving funds for working capital in their accounting books," he said.

According to the regulation, revolving funds are state funds that are included in the state budget and state financial report. The funds are disbursed to help increase the capital of cooperatives or small and medium businesses.

Prior to the regulation, agencies responsible for funneling the funds often treated them as social expenses, which can be used to fund charities and are not subject to high levels of scrutiny and are prone to abuses.

In the revised 2008 state budget, the Office of the State Minister for Cooperatives and Small and Medium Enterprises (SMEs) allocates Rp 1.1 trillion (US$119.15 million) for revolving funds.

However, the Finance Ministry's directorate general of state budget has frozen 42 percent of the money.

According to the ministry, cooperatives and the SMEs ministry cannot access the funds unless they treat them as capital expenses rather than social expenses.

State minister for cooperatives and SMEs Suryadharma Ali, also the chairman of the United Development Party (PPP), recently expressed his frustration with the Finance Ministry for not being able to access the remaining funds.

Suryadharma said the funds were desperately needed by small and medium businesses across the country.

However, Samsuar said the revolving funds could only be disbursed to certain recipients that had been approved by the Finance Ministry.

Analysts have said large sums of funds that should have been disbursed to support fishermen and farmers in the country have been embezzled by officials connected to political parties to fund their campaigns for next April's legislature election.

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