Notes from 1993

Fuad Bawazier Economist

IO – Soon after she was appointed the Minister of Finance in March 1993, the late Marie Muhammad asked me, before some of our close friends, whether the debts that Indonesia had taken out with the Consultative Group on Indonesia (CGI), replacing the Inter-Governmental Group on Indonesia (IGGI) would continue. After all, she was a local girl, not some hotshot alumna from an American university.

I said, “Of course they would continue!” “Why?” she asked. “Because the creditors, specifically the World Bank and Asian Development Bank (ADB), actually have more interest in getting their loans channeled to Indonesia. Indonesia as a debtor doesn’t really need the loan.” So I told Marie Muhammad in no uncertain terms that even if Mr. Harto appoints a security guard at the Department of Finance building the Minister of Finance, as long as that fellow is willing to take on debt, or at least does not decline to go into debt with the World Bank and ADB, borrowed money will continue to come in. You can even get named Best Minister of Finance in the World; that can be arranged.

On the other hand, I continued, “If you should decide to politely decline to take on debt from IBRD (World Bank) and ADB, you better get ready to be called wicked, silly or an outright stupid Minister of Finance. No matter what, it would get you bullied and even attacked. Even if you have a foreign doctorate. Briefly, if you, as the Minister of Finance are still willing to take on debt, you will definitely be called an excellent Minister of Finance, the best one, and ‘a friend of the market’ worthy of praise.”

This is why during the New Order Indonesia while applied only for a modest credit, the CGI decided to dole out a bigger loan, one spiced with the statement “This is proof that the world trusts Indonesia!” The Government’s Economic Team would preen in front of Mr. Harto, who appeared to accept what they told him. Ms. Marie calmed down because of my answer, and I had the impression that she was glad and her confidence bloomed.

Here we are today, again needing to take on more debt, more than just World Bank and ADB loans: our Minister of Finance must now beg for new types of debt from the free market, i.e. Government Bonds. Like any addictive narcotic, the dosage needs to be increased from time to time, i.e. by offering extremely high interest rates. To put it more frankly, we need more instruments, ones other than CGI-style foreign loans, such as high-interest bonds. Therefore, if Minister of Finance Sri Mulyani Indrawati (“SMI”), a holder of an American doctorate degree, should stop going into debt, she would become a type of Finance Minister despised by the market. I think she would not want that. I think that she would prefer to maintain the current State Budget policy of expenditures higher than income. Adhering to this policy, she will remain popular and beloved by the market. This, despite our ability to trim down our State Budget by cutting down on the “fat” of markup and unnecessary expenditures, as well as fictitious budget items. This would alas have allowed us to control our State Budget and debt deficits.

Briefly and simply, this is the reason why Indonesia’s Minister of Finance has always tended to take on more and more foreign debt. It is a symbol of international trust in our nation, as well as the source of their power in the Government. However, the level has now increased too extremely, with both volume and interest rates out of control. It is as if taking in debts is the only economic solution available, especially in terms of covering for the State Budget. We are so crazed about going deeper into debt, that even though the year 2020 has just started, we are said to have taken on IDR 63 trillion in debt, just to shore up our Rupiah, keeping to strong against the USD. Our exchange rate on 14 January 2020 was IDR 13,600.00 per USD, arousing serious sorrow among exporters. Therefore, debt policy is no longer “prudent”, as is frequently buzzed about by the Government.

So in whose interest is Indonesia taking on massive levels of debt? Feel free to supply your own answer, and there is no need for us to have a heated debate about it. My solution, my response, is clearly to impose a total reform of our Budgets, both the State and Regional Budget. Hopefully, this would be a wakeup call for those who are confused as to why Indonesia, like a bad casino gambler, keeps on rabidly and recklessly building up debt, and why we have the highest debt interest rate in the Asia Pacific region; then they would hopefully understand everything.