Monday, May 29, 2023 | 06:49 WIB

Continued economic issues will culminate with the collapse of the 2019 State Budget


Salamuddin Daeng
Indonesia Political Economy Association (Asosiasi Ekonomi Politik Indonesia – “AEPI”) Economic Observer

 IO – It will be very hard for Jokowi’s Government to save the 2019 State Budget. This is not just because of the transition period that we are having due to the 2019 Elections, but mostly because our bad macro-economic condition will result in the bankruptcy of our State Budget. We predict that this would occur at the latest in Q-III of 2019. 

Indonesia’s State Budget does not seem to be able to survive Q-III of 2019, due to the convergence of various international situations: trade wars, the weakening of global economic growth, the reduction of commodity prices, the increase of global financial conditions – all of which have worsened faster than expected. At the same time, the Government’s ability to obtain sources of funding has decreased greatly, whether in terms of earnings from natural resources, bilateral debts, or global bond debts. Tax earnings also continue to weaken along with the bankruptcy of many companies and the weakening of the people’s buying power. This is bad, because they are the biggest component of State earnings. 

National capital is not bulked up, because capital outflow is extreme due to a double deficit, worsened with primary income deficit and service deficit. This weakened establishment of the national capital means that national financial cashflow and investment are both smaller, meaning that State income is also reduced. 

Within the past decade, Indonesia has had to face various deficits in its macro-economy. Indonesia suffers from a double deficit, i.e. a high level of both current account deficit and State Budget deficit. Double deficit has always been handled through debts thus far. Both Government and private debts grow rapidly, while the ability to repay continues to fall. This pile of debts due to State Budget deficit causes maturing debt liabilities to pile up as well. 

Recently, current transaction balance has worsened because of continued deficits. This is in turn caused by our dependency on imported raw materials, consumer goods, and foodstuffs. Such dependence weakens the condition of domestic businesses, which in turn weakens their contribution to both tax and non-tax State earnings. 

The only way to cover double deficits, especially a State Budget deficit, is to again, take on extremely large debts. How much? Double the added value of the added debts taken in by the Government within the past five years. On the other hand, such a need cannot be fulfilled with the current condition of global financial risks, extremely high interest rates, and the rampant global laundering of dirty money. This means that all money holders are becoming more cautious than ever, as they need to minimize losses while avoiding charges of financial crimes. 

The above conditions will further dry up the 2019 State Budget. Conditions throughout Q-II of 2019 indicate a certainty that the Government is now panicking in its efforts to generate State income. If the Government does not understand the current condition and rectify it as quickly as possible, by Q-III we can only watch helplessly as the 2019 State Budget crumbles. 


Latest article

Related Articles