Local authorities may get direct access to loans in financial markets
The Finance Ministry is considering regulations to facilitate local governments' direct access to financial markets, which at the same time would impose fiscal discipline on them.
The new guidelines, which are expected to be in place this year, would allow local governments to borrow up to 20 per cent of their annual budget, with total exposure not exceeding 50 per cent of their annual budget, Pongpanu Svetarundra, director-general of the Public Debt Management Office, said yesterday. Local governments now operate without clear rules about borrowing. They can ask permission from the Interior Ministry and can seek loans from the Finance Ministry where the latter wants to promote investment projects. Generally, the central government will not guarantee local government debts. The Bangkok Metropolitan Administration is working on issuing bonds to finance mass-transit projects. It would be the first local government to tap the bond market directly. The Public Debt Management Office has asked for technical assistance from the Asian Development Bank on local-government borrowing guidelines. Brad Johnson, an expert from the bank, said the government should make it clear to investors that the central government would not guarantee loans for local governments. The US federal government does not provide guarantees for local governments. However, it did have to bail out New York when it faced financial instability during the 1970s, he said. Pongpanu said Thailand would learn a lesson from the United States. In special cases, the central government may need to rescue some local governments in order to contain the damage. In Poland, local authorities could use funding from the central government as collateral for loans. Pongpanu said Thailand might follow the Polish model, which offers the advantage of allowing local authorities to get access to loans and get cheaper loans from the market. So far, 731 local governments have borrowed a combined Bt1.37 billion, mainly from state-owned banks, such as Krung Thai Bank, the Government Savings Bank and the Bank for Agriculture and Agricultural Cooperatives. In the future, the Finance Ministry expects local governments to rely more on the market, which would impose fiscal prudence on them. There are about seven local governments that have the potential to issue bonds, Pongpanu added. Wichit Chaitrong The Nation
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