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Restructuring Indonesia's sub-national public debt: reform or reversion?

Listed author(s):
  • Blane Lewis
  • David Woodward

Borrowing can be an efficient way for sub-national governments to acquire capital assets, but it also carries risks of fiscal distress and insolvency for borrowers. To minimise these risks, many governments around the world have developed ex-post insolvency remedies, including, most importantly, debt-restructuring mechanisms. In an effort to resurrect borrowing for local infrastructure development, the Indonesian government has designed and begun to implement debt-restructuring programs for sub-national government and sub-national government-owned water supply company defaulters. These programs constitute a major effort to reform an important, long-neglected and problematic aspect of sub-national public finances in Indonesia. There are a number of potential difficulties with the design and execution of the reforms, however, which collectively do not inspire much optimism for rapid progress in reviving financial flows to the sub-national public sector. Still, even halting advances in debt restructuring can substantially increase local infrastructure investment in the long run.

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Article provided by Taylor & Francis Journals in its journal Bulletin of Indonesian Economic Studies.

Volume (Year): 46 (2010)
Issue (Month): 1 ()
Pages: 65-78

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Handle: RePEc:taf:bindes:v:46:y:2010:i:1:p:65-78
DOI: 10.1080/00074911003642245
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