Munich Personal RePEc Archive

Capital Financing by Indonesian Local Governments: Will Subnational Bonds (Finally) Play a Part?

Petersen, John and Tirtosuharto, Darius (2012): Capital Financing by Indonesian Local Governments: Will Subnational Bonds (Finally) Play a Part? Forthcoming in: Decentralization Support Facility Conference Proceedings (March 2012): pp. 201-220.

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Abstract

This paper provides an overview of an idea that has been percolating in Indonesia for several years, the creation of a long-term bond market for the subnational governments. The revised law PP 30 sets out the parameters for long-term borrowing by regional governments in which long-term loans made to the Public are more restricted. Although a set of legal requirements have been instituted, there are still several challenges in developing subnational bonds in Indonesia. The main question is whether subnational governments have interest and capacity in issuing municipal bonds. Lack of budget transparency, accountability and experience in managing debt are a concern in addition to a number of issues related to financial mechanics of subnational budget. This paper is to make a case for financial intermediation and oversight for the smaller subnational borrowers by establishing a bond bank

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