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SMI looks to increase financing for local administrations
State-owned infrastructure financing company PT Sarana Multi Infrastruktur (SMI) intends to expand its financing for regional administrations to give local governments more funding options to finance their infrastructure projects
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State-owned infrastructure financing company PT Sarana Multi Infrastruktur (SMI) intends to expand its financing for regional administrations to give local governments more funding options to finance their infrastructure projects.
SMI president director Edwin Syahruzad said most local administrations still relied on fund transfers from the central government and locally generated funds (PAD) to finance their development projects because of a lack of awareness of other funding options.
“Most local administrations in Indonesia still rely heavily on their regional budgets to finance infrastructure projects such as for transportation, drinking water systems and waste management,” he said during a media gathering in Thousand Islands regency, Jakarta, on Oct. 10.
As of September this year, he said, SMI’s outstanding loans for regional administrations totaled Rp 2.73 trillion (US$192.99 million), up 87.42 percent year-on-year (yoy) compared to the same period last year. Despite the exponential growth, the figure accounted only for 4.67 percent of the company’s overall outstanding loans, which totaled Rp 58.48 trillion as of September 2019.
Edwin said only a few local governments had taken advantage of other financing opportunities provided by SMI and that most used the funds to build roads and hospitals. The regional administrations that have taken out loans from SMI include Manado in North Sulawesi and North Penajam Paser regency in East Kalimantan, which will host part of Indonesia’s new capital.
The Financial Services Authority (OJK) has issued three regulations since late 2017 to encourage local governments to issue municipal funds to boost their financing capacity. Since then, the OJK has also actively promoted the advantages of the financing option in a number of regions across the country.
According to the OJK, a number of local governments, such as the provincial administrations of Central Java, West Java and Jakarta, have expressed interest in issuing municipal funds. However, none have realized such plans.
Meanwhile, Regional Autonomy Watch (KPPOD) executive director Robert Endi Jaweng said in Jakarta on Tuesday that most local administrations remained very conservative when it came to seeking funding from alternatives methods.
In addition to municipal funds, he said local governments could finance development projects through private-public partnerships, raising loans from international donors and NGOs or by taking advantage of the corporate social responsibility programs of private companies.
“They either lack the willingness to utilize such funding alternatives or they don’t have the capacity to fulfill the necessary requirements,” he told The Jakarta Post, adding that administrations would need to conduct a risk analysis assessment to be eligible to receive funding.
Another reason stems from the fact that many regional leaders remain focused on short-term development projects that can be completed within five years, Robert said.
Because of these reasons, he said, many infrastructure development projects were delayed or could not be realized at all. As the result, some regions are less developed than the others.
Edwin said the company would continue to promote the company’s financing services to regional administrations across the country. “By disbursing more loans to regional administrations, we hope we can help them provide better public services to the people and reduce their dependence on the state budget,” said the SMI president director.
He also said that as the company’s loan disbursement to regional administrations was projected to increase, SMI’s outstanding loans were expected to grow by 15 to 20 percent next year.
However, he did not specify what portion of its loans would be allocated to regional administrations in 2020.
Robert said that by receiving loans from SMI or other financial institutions or by issuing municipal bonds, local administrations would be encouraged to be more accountable and apply good budgetary governance.
“Hopefully, these efforts can reduce the number of corruption cases implicating regional leaders in the future,” he said.
