House of Representatives apparently ignores clumsy budget management

Anthony Budiawan
Managing Director of the Political Economy and Policy Studies (PEPS)

IO – Every year, the Ministry of Fi­nance, as the designated manager of State finances, is assigned to create a State Budget as a national financial plan. When the House of Represen­tatives (Dewan Perwakilan Rakyat – “DPR”) approves it, the State Budget will become an official State financial document and be expressed into a State Budget Law.

The State Budget contains details of both projected State income and expenditures. If State income is high­er than State expenditure, the State budget surplus can be applied to pay down Government debt. However, if State income is below State expendi­tures, the State will suffer a deficit, one which must be covered through either debt or other funding.

If the State Budget shows a defi­cit of IDR 100 trillion, only IDR 100 trillion in debt is to be taken on. This is the common way, i.e., you do not borrow more than you need. It would be impudent and irresponsible to as­sume more debt than required, not to mention that it is a violation of the State Budget Law, which basically only allows us to assume debts ex­actly the same as our deficit. Debt must never been seen as “free mon­ey”: there is interest to pay, and in Indonesia’s case a steep rate. There­fore, if the State Budget shows a defi­cit IDR 100 trillion and we incur a debt of, say, IDR 110 trillion, there will be problems down the road later.

Indonesia’s State Budget has been in deficit for a long time. State income has been consistently lower than its expenditures for years. In the 2015 State Budget, the deficit budgeted was IDR 222.51 trillion. Naturally, the plan was to take on IDR 222.51 trillion in debt. However, the actual deficit in the 2015 State Budget was much larger, at IDR 298.49 trillion. The greatest concern is that the actu­al amount that we have to repay, fac­toring in interest rates, is IDR 323.11 trillion. That means that there is a IDR 24.61 trillion difference between the debt and the deficit, i.e., the State Budget Debt Balance (Sisa Lebih Pembiayaan Anggaran – “SiLPA”).

In the 2016State Budget, a high­er SiLPA, at IDR 26.16 trillion. The deficit at the time was IDR 308.34 trillion, but debt stood at IDR 334.50 trillion. This trend continued, with 2017 and 2018 State Budgets show­ing excess debt at IDR 25.65 trillion (deficit rate IDR 340.98 trillion with debt rate IDR 366.62 trillion) and IDR 36.25 trillion (deficit rate IDR 269.44 trillion with debt rate IDR 305.69 trillion) for 2018.

The Government has taken on much more debt than necessary for the past four years (2015-2018), to­taling an excess of IDR 112.67 tril­lion, or 9.3% more than the total deficit, at IDR 1,217.26 trillion. This trend has persisted through 2019: up through Semester I of 2019, actu­al deficit was IDR 135.75 trillion, but debt was already IDR 175.35 trillion, for a Budget Balance of IDR 39.6 tril­lion. The year has not yet ended, but the total State Budget debt within the past 4.5 years has exceeded IDR 150 trillion. Therefore, there is a distinct possibility that 2019 State Budget debt will be higher than that of 2018.

The question is, why are we accu­mulating these massive debts? They are unnecessary, and will impose a heavy burden on the State Budget later, because we will need to pay a huge amount of interest as well: interest rate payment for 6 months (January-June 2019) totaled IDR 134.77 trillion, or 19.56% of all State tax income. That is a lot of money. On the other hand, the Government still has a lot of extra money accumulated in the Excess Budget Balance (Saldo Anggaran Lebih – “SAL”). On 31 De­cember 2018, accumulated SAL was IDR 175.24 trillion – enough to cover the entirety of the Semester I of 2019 deficit at “only” IDR 135.75 trillion.

It was really unnecessary for the Government to incur new debt in Semester I of 2019. Instead of cov­ering the deficit using the balance of money in the SAL, it actually took in much more debt than deficit again, building up excess debt in Semester I of 2019, to IDR 39.6 trillion. There­fore, SAL will spike again, from IDR 175.24 trillion to about IDR 215 tril­lion.

This kind of State Finance man­agement is far from prudent. As we can see from looming future inter­est payment, it is highly risky. Who benefits from this crazy incurrence of debt? Where are the members of the House of Representatives during this issue? How come they say noth­ing? Other than the upcoming crazy repayment when the debts mature, is this not a violation of the State Bud­get Law? Who will account for this and how?