City fixes budget reports to issue bonds

Tifa Asrianti ,  The Jakarta Post ,  Jakarta   |  Fri, 09/05/2008 11:34 AM  |  City

In a bid to issue bonds for infrastructure and utility projects, the city administration will make improvements to its annual financial report, in compliance with current regulations and with help from the World Bank.

Governor Fauzi Bowo said Thursday the city administration could not rely on city revenue alone to meet growing public needs.

"The administrations of the world's large cities have financed development using loans, bonds or a combination of both. We will explore these instruments in the future," he said after a meeting at City Hall with representatives of the World Bank.

Sukri Bey, assistant to the city secretary for financial affairs, said bonds could be the solution to funding gaps, adding the reason for issuing bonds should be made clear.

"Bonds should be used to finance non-consumption projects, such as for transportation and utilities. It is also what the World Bank wants. We have started discussions about transportation and are talking about prioritized utility projects, such as electricity, clean water, waste water and garbage," Sukri said.

Fauzi said his administration did not yet know the bonds' worth.

"The bonds will be issued gradually. The amount of bonds issued will also depend on market conditions, because if the market is slowing down, it will not be possible to absorb the bonds," Fauzi added.

According to a 2005 regulation, regional bonds and loans should not exceed 75 percent of city revenue for the previous year. In addition, the city must maintain a minimum 2.5 percent debt service coverage ratio, with the administration obtaining permission from the Finance Ministry.

According to a prior suggestion made by the supreme audit agency, regional bonds should only be given to provinces producing clean budget reports for two consecutive years. The requirement is crucial in determining a region's capacity to pay interest rates.

The administration has been trying to improve its budget reporting ever since the agency returned the city's 2007 report, claiming it found too many irregularities to begin auditing.

Improvement efforts include cooperation with the State Financial Comptroller (BPKP) and the Corruption Eradication Commission (KPK).

Fauzi said his administration and the World Bank would establish a team to assist Jakarta in improving its city budget report and in entering the bond market.

"The World Bank gave the city administration the opportunity to seek consultation over the course of a year concerning improvements to its budget report. We will form the team as soon as possible," Sukri said.

Nurmansjah Lubis, a member of the City Council, said bonds could not feasibly be issued by 2009, doubting the administration could meet the audit standards within a year.

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