State finances near collapse

 IO – Today’s Indonesian economy is suffering a “double deficit” (or “twin deficit”). What is that? A twin deficit represents a deficit in the current transaction balance taking place simultaneously with a deficit in the State Budget (APBN).

The current transaction deficit reflects the state of the national economic balance against foreign currencies, or a bad external bal­ance. The 2018 transaction deficit reached IDR 441.05 trillion (with the assumption of 1 USD = IDR 14,200). This is a gigantic value which had never taken place since the founding of the Republic of In­donesia.

Meanwhile, the State Budget (APBN) deficit reflects the wors­ening condition of State finances. All Indonesian economic actors, including companies and State Owned Enterprises (BUMN) and households are thus deteriorating. Meanwhile, State finances are dry­ing up.

According to data from the Min­istry of Finance, the State Budget deficit per end of January 2019 stood at IDR 45,8 trillion. Further­more, the realization of the budget deficit in the 2019 State Budget are reaching IDR 54,61 trillion, or approximately 0,34% of GDP until the end of February 2019.

The deficit increased again by the end of March 2019, reaching IDR 102 trillion. The realization of A budget deficit is higher than the budget deficit over the same period of 2018, which marked IDR 85.5 trillion. If this continues, then the State Budget deficit will exceed the limit set by the State Finance Law.

This twin deficit reflects the fact that Indonesia is in fact unable to finance its own economic devel­opment. The current transaction deficit means that the nation has no more reserves to finance gov­ernment expenditures.

Meanwhile, the influx of cap­ital flows from foreign debt and foreign investment, which have traditionally been relied upon by the government, cannot cover the much larger capital outflow leaving the country as profit from foreign direct investment, foreign indirect investment or portfolio investment and overseas debt interest. What is the amount of capital outflow calculated as foreign profit? This can be noted in the primary in­come deficit that has been the biggest contributor to the current transaction deficit.

According to Bank Indonesia data, the value of primary income deficit in 2018 amounted to USD 30.42 billion or IDR 431.95 tril­lion. Within this deficit lies the deficit caused by payments for foreign and overseas services, in the amount of USD 7.101 billion or IDR 100.84 trillion.

This means that as the amount of foreign investment entering In­donesia rises, larger profits will be sent overseas. The bigger the gov­ernment and private debt which comes into Indonesia, the greater the amount of funds that will be sent overseas for interest pay­ments. The greater the government adds to its debt, the greater the in­terest and obligations falling due which must be paid by the govern­ment to the lender.

Meanwhile, it is impossible for the government to raise its revenue from taxable income or non-tax­able income. Why is this? It is be­cause national economic capacity does not increase, so the volume of tax revenues also fails to rise.

While national reserves are un­available for existing development, there is no reinvestment of the profits generated by foreign capi­tal into the Indonesian economy. As a result, government revenues do not rise, while their obligations loom larger. Has the Indonesian government in fact gone bankrupt?