THE IDEA OF LOCAL BORROWING IN TIME OF FINANCIAL CRYSES: LOGICAL STEP AHEAD OR POTENTIAL RISK FOR MUNICIPAL OVERDEBT

Abstract

There is worldwide debate "to let the local governments to
borrow, in order to gain financial assets for successful accomplishment
of local assignments in the area of local infrastructure". At this point,
when financial crises still asks for its share, there are many related
questions, among which the most important is the limitation of the local
borrowing imposed by the central government. In particular, in every
debate of the municipal borrowing there is always a little query that local
government borrowing often creates, or at least contributed to,
significant problems. One of them is the potential risk of being over
borrowed. On the other hand, experts from countries that implemented
local borrowing system, see the idea as logical step ahead in order to
satisfy the need for additional financial assets, especially in the area of
local infrastructure.
The Republic of Macedonia has legally adopted system for local
borrowing, but in practice, there is a "gap" between local government's
financial capacities and bank's conditions and rules. This paper offers a
proposal model for local borrowing (Local Self-Government UnitsDevelopment Fund -LSGU-DF) in the situation of lower local financial
capacities and present economic downturn.