(Photo: Ministry of Works)

JAKARTA (TheInsiderStories) – With an urgent need of more than US$105 billion for development, the government of Indonesia must manage budgets more creatively, in the attempt to find new sources of financing for infrastructure projects; this results from a realization of limited fiscal space.

Recent regulations have been issued to drive the role of regional government to participate more in managing potential. This action can, it is believed, reduce the dependency of regional government on central government for financing regional development.

Indonesia is a unitary state with a decentralized system of regional government. The State budget is the preserve of the central government and the House of Representatives, while budgets at the sub-national or local government level are called ‘APBDs’. Currently there are 529 separate APBDs produced by local governments and approved by elected local consultative assemblies. APBDs also require central government approval (specifically that of the Ministry of Home Affairs) before implementation.

Somehow, the Financial Services Authority has currently simplified procedures for regional governments to sell bonds on capital markets and raise funds to help finance infrastructure projects in their respective regions.

Technically, regional governments have been allowed to issue bonds for more than a decade now. However, none have ventured forth to attempt to do so because of the complex procedures set up by the central government.

The new procedures will expedite issuance, while still ensuring sustainability and the ability of the regional governments to repay its debts.

For now, regional governments’ stream revenue comes mainly from central government contribution, local taxes and licensing fees. They barely cover their operational needs, let alone to finance major projects.

Based on FSA data, West, Central and East Java were already at an advanced stage to issue the bonds, without mentioning the exact date of issuance.

Central Java has considered issuing municipal bonds to help spur infrastructure development across the province.

With FSA having recently simplified the procedure of selling bonds in the capital market for alternative funding, the regional administration looks poised to take steps to realize the plan

On the same day, the FSA also issued two other regulations – on green bond procedures to raise money backed by natural resources and on an e-registration system to boost its service efficiency and transparency to stakeholders.

The central government also stated the Non-Government Budget Investment Financing (PINA) scheme is needed for Indonesian to develop infrastructure, said National Development Planning Minister Bambang Brodjonegoro.

This scheme will help reduce the burden on the state budget, which has been limited so far, to encourage development.

He expected the involvement of long-term funds in PINA, such as pension funds and life insurance, for the effective management and utilization of infrastructure financing.

Various financial instruments to support the PINA scheme are also being prepared, such as Perpetual Bonds with a very long tenure, which not only supports infrastructure development but also increases interest in the capital market.

Indonesia had 34 planned infrastructure projects using the PINA scheme as of December 2017, including 19 projects in toll road, four in aviation, 10 in power generation and transmission, and one in tourism. These projects cost 348.2 trillion Rp (25.8 billion USD) in total.

A number of PINA’s projects, including 15 Waskita toll roads and the Kertajati International Airport, have reached financial close.