2011年-世界发展银行全球_The_Need_Capacity_and_Willingness_of_Regional_Governments_to_Finance_Public_Infrastructure_from_Long-Term_Loans_38页_2mb

Summary of the Report: The Need, Capacity and Willingness of Regional Governments to Finance Public Infrastructure from Long-Term Loans

Core Content

This report evaluates the need, capacity, and willingness of regional governments in Indonesia to finance public infrastructure through long-term loans. It is part of an initiative by the Government of Indonesia (GOI) to encourage regional borrowing, particularly for infrastructure projects that are indirectly revenue-generating, such as roads and flood control systems. The report was prepared under the guidance of the Directorate-General of Fiscal Balancing in the Ministry of Finance (MoF) and focuses on the legal and financial framework provided by Government Regulation 30/2011 (PP30/2011), which replaced the earlier PP54/2005.

Main Objectives

The report aims to:

• Review the need for long-term loans by regional governments to finance public infrastructure.
• Assess the capacity of regional governments to repay long-term loans.
• Identify constraints to long-term borrowing.
• Recommend options to mitigate these constraints.

Key Findings

1. Need for Long-Term Loans

• Definition of Need: The need is defined as the amount required to finance public infrastructure projects that are not privately financed, have an economic lifetime of at least ten years, are regional responsibilities, and cannot be fully covered by regional budgets (APBD).
• Estimation Methods:
  • Macro-economic method: Based on GDP growth and investment needs, the total required investment for 2011–2015 is estimated at IDR 1,100 trillion, with IDR 670 trillion expected to be financed internally, leaving a need for long-term loans of IDR 430 trillion (or ~US$50 billion).
  • Sectoral method: Focused on five key infrastructure sectors (roads, education, health, water and sanitation, and traditional markets), the total required investment is IDR 934 trillion, with IDR 670 trillion from internal revenue, implying a need for long-term loans of IDR 264 trillion (or ~US$30 billion).
• Limitations: The report notes that micro-economic methods were not feasible due to lack of detailed financial data, inconsistencies in investment plans, and unclear sectoral responsibilities.

2. Capacity to Repay Long-Term Loans

• Legal Framework: Borrowing is regulated by PP30/2011, which outlines four conditions for taking on long-term loans:
  • Total outstanding long-term debt (TOLTD) must not exceed 75% of non-earmarked revenue in the previous year.
  • Debt service coverage ratio (DSCR) must be at least 2.5.
  • No arrears on central government loans.
  • Approval from the regional parliament (DPRD).
• Debt Repayment Capacity (DRC):
  • Based on Limit #1, total DRC is estimated at IDR 257 trillion.
  • Based on Limit #2, total DRC is estimated at IDR 281 trillion.
  • Based on Limit #3, it is not applicable due to lack of data, but most regions could clear arrears within one year.
  • The conservative estimate of total DRC for all regions in 2010 is IDR 188 trillion, which is ~44% of the estimated need for long-term loans (macro-economic method) and ~71% of the need (sectoral method).

3. Willingness to Use Long-Term Loans

• Willingness vs. Need and Capacity: The report highlights that while the need for long-term loans is substantial, the capacity to repay is limited. This creates a gap between the need and the capacity.
• Constraints to Borrowing:
  • Uncertainty about private sector interest in infrastructure financing.
  • Ambiguity in financing responsibilities between central, provincial, and district governments.
  • Lack of sectoral breakdown of investments.
  • DPRD approval process is slow and cumbersome, especially for sub-loans from the central government.
  • Arrears on existing loans can limit access to new loans.
• Recommendations: The report suggests the establishment of a Municipal Development Fund (MDF) to facilitate long-term borrowing, and the need to clarify responsibilities and improve financial data transparency.

Conclusion

Regional governments in Indonesia have a significant need for long-term loans to finance public infrastructure, particularly in sectors such as roads, education, and health. However, their capacity to repay such loans is limited, with the total estimated repayment capacity being IDR 188 trillion in 2010, far below the estimated need of IDR 330 trillion. The willingness to borrow is constrained by legal, administrative, and financial challenges, including the complexity of the DPRD approval process and the risk of arrears. The report recommends the development of a domestic capital market for municipal bonds and the establishment of a MDF to address these issues and support long-term infrastructure financing.