_59_ borrow domestically, however, at least directly, although they do so indirectly through enterprises they own and through local financial intennediaries which float bonds designated for local government projectsaL'. In the CSFR, the two republics have restricted access to borrowing through T-bills issued on an agreed basis and amount by the Federal Ministry of Finance. By and large, however, despite these liberal provisions, local government borrowing has so far not been significant, as table 9 shows.

# Eat Borrowing Practices.

202. In some countries, however, the heritage of debt from the previous regime has become a problem. In the pre-reform situation, in which the national credit plan was designed to finance investment and other expenditures called for in the Plan, to the extent that in the unified framework of the Plan, local governments required loans, borrowing was not only permitted, but indicated. Th loans wero made by one or another of the State Banks, whose lending was wholly plan-directed. In Hungary, for example, my localities borrowed under the credit pla in the pre-reform period, with each loan being guarnteed by a higher-level authority. In the Slovak Republic the ind_btedness of the local (municipal) government to tho banking sector is espocially high: some 30 municipaities have been able to pay neither principal nor interest on these loans. In Poland, it has been reported that almost 900 geminas (40% of all local governments) are in debt, as a result of borrowing, mainly from banks, under the prereform regime.

203. The facilities for borrowing provided to local govenments in the post-reform legislation thus have roots in the planning period. In present day circumstances, however, such generous and virtually uncircumscribed access by local govemments to loan finance seems out of place. Such acces is restricted even in most western countries for several reasons. First, the centrl government uses debt finance as a stabilization tool, and it does not want local govemments acting in such a way as to cAmntor its policies. Second, local borrowing may in some cirumstances crowd out private sector borrowing which may be more economically beneficial to the country. Third, to the extent central govenumnts wish to avoid local govemments becoming bankrupt they in effect implicitly guarantee local govenmuent debt, so that local governmnt borrowing becomes a potentially open (and destabilizing) door to the national treasury.

Table 10 Subnational Goverment Borrowing

|Country|Local Borrowing Authority|Borrowing % of total<br>revenue in recent years|
|---|---|---|
|Hungary|Yes (unlimited in law)|some municipalities have<br>past debts|
|Poland|Yes (limited in law)|1.4%|
|Romania|Yee"|N.A.|
|Bulgaria|N.A.|N.A.|
|Czechoslovakia<br>____<br>_<br>___|Yes<br>__<br>___<br>___<br>___<br>___<br>___<br>___<br>___<br>___|significant past debts<br>O Utst nding|
|Russia|Yes (unlimited in law)f'|'|
|China|Nay|0|
|Vietiam|N.A.|N.A.|

Notes: _[/_ Even though local govemments in Romania are pemitted to borrow in principle, in reality ther exists no borrowing -just arrsea (non-payment of bills); _21_ This was suspended in 1992; 3/ Sometimes borrowing takes place through enterprises (see text).

_IL_<sup>_1_</sup> _See_ 'China: Revenue Mobilization and Tax Policy', World Bank Country Report, Washington DC, 1990, and -China External Trade and Capital, World Bank Country Report, Washington, DC, 1988.