Jakarta – Indonesia's chief economics minister Rizal Ramli lashed out at the International Monetary Fund (IMF) Thursday over its dissatisfaction with Jakarta's restrictions on borrowing by regional governments. Ramli said the IMF had criticised the restrictions, announced last week, as too weak.

"The IMF are not happy. They said: This language is not strong enough'," Ramli told journalists at a briefing here. "I am trying to argue, and in fact I am sending a letter today to [IMF deputy managing director] Stanley Fischer [saying that]: 'Look, we cannot explicitly say that we are not allowing local governments to borrow, that this is against the law'."

Ramli announced last week that Jakarta was temporarily banning local administrations from raising both offshore and domestic loans, citing IMF concerns that inexperienced regional governments would go on unchecked spending sprees, potentially inflating central government debt.

But on Thursday he revealed that the ban – which also covers regional governments issuing bonds – was in effect a stipulation that the regions get central government permission first.

"We requested that for any offshore borrowing the local governments have to get permission from the Ministry of Finance," Ramli said. "Similarly with the issuing of bonds ... the finance ministry already issued a circular that discourages local banks and regional banks to lend out to local governments."

Ramli said the IMF was pushing too hard on reform demands, which include reform of the central bank and greater controls over newly-autonomised local governments, without appreciating complex political constraints. "We get that feeling."

Although he said he understood the IMF's position, "which asks ... that local governments would not be allowed to borrow until the end of the year," Ramli said a total ban was not feasible.

"To issue a regulation totally against the law, that's something that we cannot do. We would like to amend the law, but not today because there are so many things ... we are going to amend it next year."

The IMF, unhappy with the newly-implemented decentralisation policy, under which 364 district governments were initially given borrowing powers, is still holding back on the disbursement of a 400 million dollar loan tranche to Jakarta that was due last December.

Ramli, a Boston-trained economist, who has a history of challenging the IMF's approach to lending to Indonesia, also lashed out at the fund for allowing Indonesia's previous government to pass the original bill allowing borrowing by local governments.

"I told the IMF, 'You were here when Habibie was in power when they pushed for the law on economic decentralisation, including the article that said local governments are free to borrow and issue bonds. You don't complain."

"Now it has already become a law. We have to implement that and we cannot move against it."

The IMF has been assisting Indonesia with a five-billion dollar bailout program tied to financial reforms since the onset of the regional financial crisis in 1997. It has so far disbursed some one billion dollars.