IS INDONESIAN GOVERNMENT DEBT STILL SAFE?

We often hear oblique comments from citizens about the position of government debt both in the mass media, social media, and in our daily conversations. In general, residents consider the role of government debt, which has now reached more than 5,000 trillion rupiahs, as a dangerous and unnatural thing. This public skepticism is generally formed from the memory of the past 1997 monetary crisis. The cause of the collapse of the government’s finances was that most banks and corporations were not careful in managing debt. As a result, all the people share the risks indirectly through the BLBI assistance disbursed by the government to cover conglomerates’ debts.

When this finally led to the granting of debt relief for conglomerates, the issue arose later was the injustice of the rulers’ attitudes towards the few people who have enjoyed these facilities. However, is it true that current conditions can be compared to situations in our country 23 years ago? This simple paper tries to discuss and address these conditions.

Managing a state household is not the same as driving a private home. In a democratic country, the government, as a leader who has received a mandate from the people, tries to make every effort to improve their standard of living and welfare. There will be many parties (stakeholders) involved in state management, not just the government’s responsibility alone.

In private households, expenses are adjusted to the ability to earn income. If the income is small, then the costs must be saved, and vice versa. However, this is not the case with state households. The state prepares various expenditure needs and priorities for both governance and development. If the sources of state income are not sufficient to finance all these expenses, the country is obliged to seek funds to cover the shortfall by attracting other parties’ debts. So whatever efforts the government takes are legitimate for the excellent purpose without violating rules and etiquette.

In the late 1990s, when the government enjoyed being in power for more than 30 years, they forgot about the fundamental condition of the country’s economy. The shape of the domestic economy is already very fragile. Swayed just a little by speculators who played with the capital market and foreign exchange rates, Indonesia was plunged into a deep crisis. It seems that at that time, the high willingness to borrow was not accompanied by a risk analysis and good management. This can be seen from the uncontrolled amount of foreign debt, which incidentally is denominated in foreign currency, which will be due simultaneously.

When the government and the private sector both need foreign exchange (dollars) in enormous amounts to pay off foreign debts, suddenly, the dollar becomes scarce so that its exchange rate jumps sharply due to the very high demand. As a result, the rupiah’s value fell in front of several major world currencies. Consequently, the number of Indonesia’s assets, property, and export products became as if they were worthless in front of owners of foreign currencies, especially foreign parties. On the other hand, the prices of commodities originating from abroad (imports) immediately skyrocketed. This condition is, of course, very draining of domestic financial resources. Then there was a massive flow of domestic foreign exchange out of the country massively and beyond the government’s control (capital flight). The significant effect we all know is that the domestic economy has plummeted. People’s purchasing power has dropped, and the political impact is that people’s trust in the government has fallen to its lowest point.

Learning from history, the Indonesian government does not want to repeat these mistakes. The government maintains the principle that debt is not taboo to do. What is important is that debt is necessary and must be managed carefully and prudently. The government is also severe about implementing state debt management. This is evidenced by the establishment of an agency tasked with formulating and implementing policies in the field of loan and financial risk management and providing technical guidance and evaluation in the field of risk and financing management.

The government realizes that one crucial thing that was often neglected by the government in the past in managing debt is accountability. Government debt is aimed at the state’s common interests and the people, namely, to finance the state budget. Therefore, the management of state debt must be transparent and accountable to the people as the owner of sovereignty. The current government has proven this principle of accountability and transparency by presenting data/information on state debt in APBN documents that can be accessed by the public. The public can also visit the Ministry of Finance’s website and get more detailed information about managing state debt. This is done because the government realizes that increasing public accountability and transparency in debt management is in learning good governance. Finally, people can see for themselves the real difference in the direction of state debt between the previous government, the conditions before the crisis, and the current conditions.

We will understand that the state debt can be planned, calculated, regulated, and measured by standard and scientific (exact) methods because it involves analyzing numerical calculations. So, apart from political and non-technical factors, debt management is easy for the public to monitor and evaluate. Also, in the government’s vision, it is stated that the state debt will be increased by issuing domestic government securities (SBN), which mobilizes the participation of our people to support the government in funding development jointly. This is in stark contrast to the past condition in which state debt (mostly from abroad) was dominated by bilateral debt from other countries or certain donor agencies. This SBN, of course, will minimize the influence or intervention of other (foreign) parties in financing and state management.

One of the government’s scientific methods is to determine measurable and clear indicators in the form of numbers to ensure that the state debt condition is still in the safe category (manageable). For example, setting a safe risk limit for government debt is 60% of gross domestic product (GDP). GDP reflects the country’s ability to generate income from the economic activities of the people in the country. To find out, the amount of Indonesia’s GDP in 2019 reaches IDR 15,884 trillion. If most government debt comes from the issuance of SBN in the country and has not exceeded the 60% GDP limit, of course, we know that the current state debt condition (IDR 5,569 trillion or 36% GDP) is still at a safe level, or far from worrying.

Another exact indicator is the APBN deficit limit measure in the current year, which is said to be safe if the percentage is still below 3% of GDP. The deficit is a general term used in the study of budget management by various countries. This term should not be interpreted as a “bad” or dangerous condition for the country. Instead, our government has adopted a deficit APBN financing system because it is more transparent and easy to monitor. So the APBN deficit is a sure thing if the realization of expenditure to finance the state’s needs is greater than the state revenue, which is purely derived from revenue sources originating from the community, for example, taxes and other legal revenues. If the deficit is finally closed by raising funds from the public in the form of issuance of SBN, of course, there is no reason to say that the APBN deficit is dangerous. Because it turns out that the people themselves can finance and cover the deficit, the most important thing, in this case, is that the government is consistent and can guarantee that the debt management is still within safe and reasonable limits.

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