Local finance is rather murky. But.... The reason...

2009-08-04T17:20:53.736-07:00

Local finance is rather murky. But....

The reason that local bonds are being channeled through the Ministry of Finance is precisely so that the MoF can serve as gatekeepers and prevent excessive lending.

MDIC's are used by local governments for funding. The trouble with them is that if they default, then don't expect the central government to assume any of the debt. The Central Government has in the past walked away from this sort of debt (see GITIC for a spectacular example of that). Local investment corporations default all of the time, and the central government will not assume any of this sort of debt, because they have no particular reason to do so.

Also the Central Government is very tightfisted about local debts. The last time you had massive issuance of local debt was in the late-19th and early-20th centuries, and this caused a mess.

Comments on Experience Not Logic - 不经一事，不长一智: Posts of the Week: 7/20 - 7/26

Local finance is rather murky. But.... The reason...