IO, Jakarta – It is a sad fact to admit that for the 72 years of independence, our Republic has never been out of debt. Of course, every contemporary government of just about every country is perpetually in debt, either to certain other countries or to multilateral institutions.
When President Soeharto stepped down in May 1998, he left behind a national debt of Rp 551.4 trillion, at a ratio of 57.7 percent to Gross Domestic Product (GDP). Next, under President BJ Habibie, Indonesia’s debt reached Rp 938.8 trillion, with a debt ratio swelling to 85.4 percent of GDP. During the period of President Gus Dur, government debt soared to Rp Rp 1,271.4 trillion, at a debt ratio of 77.2% of GDP, while in the era of President Megawati Soekarnoputri, the debt was Rp 1,298 trillion, at a debt ratio of 56.5 percent. When President Susilo Bambang Yudhuyono came to power for 10 years, he left behind a debt of Rp 2,608.8 trillion, at a debt ratio of 24.7 percent.
In just 3 years of the Jokowi-JK government, September 2017, Indonesia’s foreign debt was recorded at Rp 4,636 trillion, at a ratio of 27% of GDP. Of the total debt, government debt reached Rp 3,866.45 trillion.
Debt Alarm
With a substantial increase in the amount of debt over a short span of time, the government needs to be vigilant. This was expressed by Bhima Yudhistira, Economic Observer from the Institute for Development of Economics and Finance. ‘We can say it is at an ‘amber light’ at the moment. Government debt is still below 60% of GDP, still reasonable on the radar, while our actual GDP is very large. There is a country in Europe whose GDP ratio is up to 100 percent but it has not been declared in default, because of IMF intervention. Meanwhile a nation with a 40% debt has been declared in default – for example, Ireland. Hence, if we use the parameters of debt to GDP, it is oversimplified,’ complained Bhima to the Independent Observer.
Meanwhile, Senior Economist Ichsanuddin Noorsy reports that he reminded the government some 18 months ago that Indonesia’s debt has placed our nation in a vulnerable position. ‘It’s bright yellow. This means we already see an alarm; we cannot continue. Stop! Do not add more debt,’ he warned.
What is worrisome for Bhima and Noorsy is our fragile economic foundation. Moreover, said Noorsy, 40% of State Securities are controlled by foreign parties. ‘This is dangerous: the indicator is the foreign holding at almost 40%, meaning the SBN rate beats the interest rate of the bank. So the government has really turned over the store to foreigners,’ he complained.
To date, the Government’s stance is that it takes debt to carry out productive aspects of infrastructure development. Unfortunately, such massive infrastructure development has no direct impact on the community. ‘How can it be: there is infrastructure construction, but the absorption of labor has dropped, cement is over-capacity, the iron industry, steel, and base metals from 2016 all show negative growth,’ said Bhima.
What’s more, Bhima points to the fact that loans taken out for construction were capital expenditures, while over the last 2 years, the realization of capital expenditure is only 80%. ‘This means that the government, having already worked hard to get the loan, has only absorbed only 80% for development, so the remaining 20% is useless. This is wasteful. In fact, we still have to pay the interest on it’ he said.
As affirmed by Noorsy, debt taken on by the government to cover previous debts demonstrates how the government is caught up in a ‘modern slavery’ system. ‘So the Government works for outsiders. We are slaves. The resources are controlled by them, they hold the production, they also make the money, and they also determine the distribution. It is simply land exploitation,’ he concluded.
The more liberal the economy behaves through its trade and finance, the lower its authority becomes. ‘Debt becomes a means of colonizing Indonesia. So, Jokowi’s Trisakti is not really talking about controlling the economy, but instead of submitting to economic dependency,’ Noorsy complained.
The government works in favor of investors’ interests, so actually the owner of capital has succeeded in dictating the government.
Bhima further pointed out how compared to other countries in ASEAN which take out loans, Indonesia’s debt is increasingly unproductive because loans are made to pay old debt. ‘Should a debt be taken on, it will compound the problem. ‘New debt is assumed to pay the matured loans. What is most feared in 2018-2019 is debt maturity. Rp 810 trillion has to be paid back, while our APBN expenditure is Rp 2200 trillion. The Rp 810 trillion figure is almost half of all expenditures. Our debt burden in 2017 is Rp 220 trillion just for the payment of interest. If there is Rp 810 trillion plus Rp 220 trillion in interest, Rp 1000 trillion is due to be paid by the government. This data is valid because it is from the Ministry of Finance, ‘he assured the Independent Observer.
Further, according to Bhima, the massive infrastructure development cannot be considered apart from the self-image built by President Jokowi. ‘Why should the infrastructure have to be finished in 2019? Because infrastructure is one of the most accessible means of campaigning in the community. Mr. Jokowi does not acknowledge how consumer purchasing power is headed down, but in fact the 2018 bansos (social assistance) fund has 10 million recipients: this is a desperate effort to stimulate the purchasing power of working-class citizens. So there is a contradiction. There is something being deliberately ignored, but in 2018 it will be executed. The budget from the Ministry of Social has doubled, gone up by 100%. So the price paid for political ambitions is too great, and the people are sacrificed’ he said.
Bhima pointed to the way Indonesia’s economy is undermined by its own policies and internal governance. The national debt trends are heading in an unhealthy and unproductive direction. Unfortunately the government always denies this. ‘I call it “denialnomics”. Efforts continue to deny what is really happening. Later, if when it becomes baldly evident, they will simply say “Our economy is indeed problematic”. If we remind them about the danger of debt, the government always says that from the time of Sukarno the government was also in debt, so do not blame this regime. We do not blame them, but ask them not to push us into a deeper abyss,’ he said.
This increase of government debt exerts two important impacts on society. First, taxes are becoming more aggressive. Starting in October, bank accounts become more transparent for the benefit of taxation – especially accounts above Rp 1 billion. ‘All is being targeted, because how could they pay their debt if not from tax revenue? If the tax revenue is insufficient, automatically we are the ones who are targeted. Later the taxes start getting weird’, Bhima said. Second, subsidies. Subsidies will begin to decrease, from BBM, electricity, to 3 kg LPG gas. ‘Subsidies are cut to build infrastructure and to pay off debt. What happened in 2017 was that 900VA tariffs did not rise but the subsidy was revoked. 18.9 million households were affected; we automatically talk about ‘purchasing power’; yes, purchasing power was squeezed off because everything has become more expensive. Then other things: in terms of fuel, premium subsidies are mostly not on target; we finally see the emergence of Petralite, premium does not rise, but we find it difficult to find in the marketplace. People are forced to buy the non-subsidized one. At a higher price, 3 kg of LPG gas does not rise but it disappears from the market: even if people want to buy it, they must show their KK (family card) and KTP (ID card). In 2018 electricity does not go up, but the classification becomes one. All of this is because fiscal space is getting narrower and there is no more budget; the debt must be paid, so political ambition creates more debt’, said Bhima. Third, the increase in the cost of living becomes higher, followed by fragile macro-fundamentals. Thus, life for the average citizen gets more and more uncomfortable.
Suggestion
By considering the increasing debt, while there is still a considerable percentage of unabsorbed funding, Bhima advises the government to rationalize its infrastructure development projects. Of the 245 National Strategy Projects currently on the table, it would be better to shelve those still in a planning phase. ‘What a useless debt. There is a discontinuity: development without any impact. We recommend that the government stops the construction of infrastructure that is still in the planning stage, so there will be savings; we are not too dependent on debt to build infrastructure. What is needed is a private partnership’, he said.
Bhima is worried that if Jokowi is in office for two terms, the debt could rise to above Rp 2,000 trillion. ‘If it is 2,000 trillion, we can not say that our debt is only 30% below GDP. Our foreign exchange reserves are the lowest in Southeast Asia, at only 14% of GDP. So the level of shock protection for the economy is the most dangerous’, he said.
Noorsy said that Indonesia should implement a ‘constitutional economy’ to cut its debt, starting from social capital and financial capital. Social capital should not be higher than financial capital: balanced, with synergy and accommodation. (Dessy Aipipidely)