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Background
Government debt can be categorized as internal debt(owed to lenders within the country)
and external debt (owed to foreign lenders). Another common division of government debt is by
duration until repayment is due. Short term debt is generally considered to be for one year or
less, and long term debt is for more than ten years. Medium term debt falls between these two
boundaries. A broader definition of government debt may consider all government liabilities,
including future pension payments and payments for goods and services which the government
has contracted but not yet paid.
A central government with its own currency can pay for its spending by creating money ex
novo. In this instance, a government issues securities not to raise funds, but instead to remove
excess bank reserves(caused by government spending that is higher than tax receipts) and
'...create a shortage of reserves in the market so that the system as a whole must come to the
[central] Bank for liquidity.
Key Terms
1) Budget deficit - the amount by which a government's spending exceeds it's income over a particular
period of time.
a. Debt - the accumulation of budget deficits.
b. In the same way our GDP grows every year, due to population growth and productivity increases. And
our ability to sustain debt grows along with our income.
2) "Default"- the investors who loaned the government money lose billions and the government loses all
credibility, and it causes massive recession.
3) Debt ceiling - limit on the amount of national debt that can be issued by US Treasury.
Cons:
Many nations choose to peg their currency to another nations' currency or some, like the EU
nations, choose to surrender their monetary sovereignty and adopt a foreign currency(Euro).
Many nations also choose to issue bonds in a foreign currency. All such nations' debt is a
disadvantage and could pose a problem, as seen in the EU.
Summary - No nation should ever surrender their monetary sovereignty in the hope of improving
their economic conditions. It never works in the long run.
The increasing level of Indonesia’s government debt has become a hot topic ahead of the 2019
presidential election. The central government debt has increased by about 48% since President
Joko “Jokowi” Widodo came to office in 2014, or almost double that of the previous
administration.
The opposition leader, Prabowo Subianto, who will once again challenge Jokowi in the
upcoming election, claimed that this rising debt would likely bankrupt Indonesia by 2030. In
response, Jokowi said that Prabowo’s statement was overly pessimistic.
This article offers an objective elaboration and analysis of the government debt situation in
Indonesia to help answer the public’s concern on the prospects of the country’s economy.
Uncontrollable government debts plunged Greece into crisis in 2017. The Greek experience
was a wake-up call for countries to carefully evaluate their strategies for managing their debt.
Prabowo’s statement seemingly reflects his fear that Indonesia might follow in Greece’s
footsteps.
Meanwhile, the country’s ratio of debt to gross domestic product (GDP) increased from 24.7% to
30% between 2014 and 2018. This level is, however, lower than the 60% limit imposed by the
country’s debt management constitution.
Compared to other countries, Indonesia’s debt-to-GDP ratio is still manageable. The debt-to-
GDP ratios of the US and Japan, for example, stand at a staggering 105% and 253%,
respectively, as developed countries can easily borrow funds to help finance their deficits.
Within the Southeast Asian region, Indonesia’s debt-to-GDP ratio is also comparatively low.
Once we understand the current status of Indonesia’s debt, the next question is: should we be
too concerned about it?
In recent years, Indonesia has become more dependent on local lenders than foreign ones in
efforts to mitigate exchange-rate risk and reduce vulnerability to global shocks associated with
external debt. This strategy has been reflected in the increasing use of rupiah-denominated debt
securities issued to the Indonesian public.
The latest statistic from Bank Indonesia showed that the share of foreign loans in Indonesia’s
debt portfolio decreased from 78% to 30% between 2008 and 2017. The share of rupiah-
denominated debt securities rose from 21.7% to 70% during the same period.
Another key relevant issue is what Indonesia does with its debt.
By reducing the proportion of its external borrowings, Indonesia has more flexibility in spending
its debt. Debt raised from foreign creditors often comes with conditions and boundaries on how
the debtor can use the loans.
The government has allocated much of its debt money to developing infrastructure – a key
priority of Jokowi’s administration. Massive spending has been channelled to large-scale
projects, including airports, seaports, mass rapid transport system, toll roads, as well as thermal
and hydro-power plants.
Under Jokowi’s budget plan, spending on infrastructure has consistently increased by nearly
US$10 billion per year, almost four times that of the previous administration.
Jokowi has also prioritised spending in two other key sectors of the economy: education and
health.
As mandated by the Constitution, and continuing the legacy of the SBY’s administration, the
government has allocated 20% of the annual budget for education. One innovative education
program of Jokowi will soon see an establishment of a sovereign wealth fund to finance
scholarships for postgraduate education.
The government has also boosted spending to improve the country’s healthcare system. As of
September 2017, around 70% of the Indonesian population enjoyed the benefits of the
government-supported health coverage program. By 2019, the government aims to cover all
Indonesians in the healthcare program.
In contrast to the above, Jokowi’s administration has cut the country’s fuel subsidy since 2015.
Some considered this policy unpopular as it may adversely affect growth in the short run. Higher
fuel costs can lead to an increase in production costs and a decrease in economic activity.
However, this decision will give significant budget relief for Indonesia and substantially improve
its debt position in the future.
Data from the Finance Ministry show that between 2014 and 2017 spending on education,
health and infrastructure increased by 11%, 54% and 118%, respectively. Spending on the fuel
subsidy decreased by 77% during the same period.
Such budget strategy represents good spending decisions by the government. This spending
will create what classical macroeconomic theory argues as sustainable long-term growth with an
increase in standards of living resulting from an increase in productivity.
Final verdict
The accumulation of Indonesia’s government debt ought to be treated with some caution. The
Greek experience has presented lessons for countries to re-evaluate their approaches to debt
management.
In the period leading up to the presidential election, the debt issue in Indonesia has been very
much politicised. However, we do not see it as a threatening economic concern.
The debt-to-GDP ratio of Indonesia is still within a sustainable limit. Indonesia is also moving in
the right direction to effectively utilise its debt. Three major international credit rating agencies
agreed with such a verdict. Indonesia’s sovereign credit rating was recently upgraded.
There is of course room for improvement as the country continues its struggle to raise taxation
revenue, improve bureaucratic efficiency and fight against corruption.
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Daftar Pustaka
Definisi:
https://en.m.wikipedia.org/wiki/Government_debt
Pros dan Cons hutang negara:
https://www.quora.com/What-are-the-pros-and-cons-of-nations-having-a-national-debt
https://www.thebalance.com/what-is-the-public-debt-3306294