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 position of government debt, which has now reached more than 5,000 trillion rupiah, as a dangerous and unnatural thing. This public skepticism is generally formed from the memory of the past 1997 monetary crisis, where the cause of the collapse of the government’s finances, most banks and corporations were due to not being careful in managing debt. As a result, all the people share the risks indirectly through the BLBI assistance disbursed by the government to cover the debts of conglomerates.

When this finally led to the granting of debt relief for conglomerates, the issue that 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 conditions 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 managing a private household. 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 responsibility of the government alone.

In private households, expenses are adjusted to the ability to earn income. If the income is small, then the expenses 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 state is obliged to seek funds to cover the shortfall, even though by attracting debts from other parties. So whatever efforts the government takes are actually legitimate for the right purpose without violating rules and propriety.

In the late 1990s, when the government enjoyed the comfort of being in power for more than 30 years, they forgot about the fundamental condition of the economy in the country. The condition 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 is evident from the uncontrolled amount of foreign debt, which incidentally is denominated in foreign currency, which will mature simultaneously.

When the government and the private sector both need foreign exchange (dollars) in very large 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 value of the rupiah fell in front of a number of major world currencies. As a consequence, the value 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 control of the government (capital flight). The big effect we all know is that the domestic economy has plummeted, people’s purchasing power has dropped, and the political effect is that people’s trust in the government has dropped to its lowest point.

Learning from past history, the Indonesian government does not want to repeat these mistakes. The government maintains the principle that debt is not something that is taboo to do. What is important is that debt is necessary and must be managed carefully and prudently. The government is also serious 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, as well as providing technical guidance and evaluation in the field of risk and financing management.

The government realizes that one important thing that was often neglected by the government in the past in managing debt is accountability. Basically, government debt is aimed at the common interests of the state 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 the context of realizing good governance. Finally, people can see for themselves the real difference in the management of state debt between the previous government, the conditions before the crisis, and the current conditions.

We will understand that the state debt is something that 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 actually easy for the public to monitor and evaluate. In addition, in the government’s vision it is stated that the state debt will be increased by issuing domestic government securities (SBN) which in fact mobilizes the participation of our own people to jointly support the government in funding development. This is in stark contrast to the past condition in which state debt (especially from abroad) was dominated by bilateral debt from other countries or certain donor agencies. With this SBN, of course, will minimize the influence or intervention of other (foreign) parties in financing and state management.

One of the scientific methods applied by the government 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 the amount of government debt is 60% of gross domestic product (GDP). GDP reflects the ability of a country 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 the majority of government debt comes from 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 measure of the APBN deficit limit in the current year which is said to be safe if the percentage is still below 3% of GDP. 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. Our government has instead 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 needs of the state 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 are able to 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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