Govt to go guarantor for infrastructure projects

Ary Hermawan, The Jakarta Post, Jakarta

The government will issue guarantees to domestic banks to help encourage more bank lending to finance infrastructure projects and armaments procurements, a minister has said.

"We must provide them with letters of guarantee. After all, we also provide such guarantees when taking out foreign loans," State Minister for National Development Planning Paskah Suzetta said Wednesday.

Meanwhile, Coordinating Minister for the Economy Boediono said the guarantees, to be issued in respect of multi-year infrastructure projects, would provide greater certainty and instill more confidence in the banks when considering whether to extend loans.

Paskah said his ministry would arrange a meeting with the country's banks soon to discuss the issue.

"Some of them have individually agreed to finance the defense industry, including procurements from firms such as PT Dirgantara Indonesia, PT PAL and PT PINDAD," he said.

Paskah said his ministry had received applications to take out foreign loans from government departments and local governments so far this year worth a total of US$40 billion to finance development projects.

Paskah added that his ministry was currently deciding which of the proposed projects could actually be financed from local sources.

"We will be very prudent in assessing the projects," he said, stressing that the government would prioritize local financing and optimize budget spending before turning to overseas borrowing.

He explained that the government's guarantees would provide assurance to banks in disbursing loans so that they would not have to worry unduly about breaching legal lending limits (LLL).

After dissolving Indonesia's main grouping of creditors and donors, the Consultative Group on Indonesia (CGI), last week, the government has pledged to rely more on its own resources to fund the country's development.

Paskah said the government hoped to further lower its debt to GDP ratio, which stood at 42 percent last year.

"We will try to reduce the number of new (foreign) loans taken out," he said.