Every Child Born With IDR 24 Million National Debt: Exploring The Dangers Of Loans For Us

JAKARTA - Indonesia's debt swells. At the end of June 2021, government debt was recorded at Rp6,554.56 trillion. We know it's a big number. But do we really understand the dire impact this debt has on us? The old saying that "every Indonesian child born bears the state debt" is true. And the number is not small.

The figure of Rp6,554.56 trillion is complemented by a debt-to-GDP ratio of 41.35 percent. This figure has increased compared to the same period last year. At the end of June 2020, the government's debt position was recorded at IDR 5,264 trillion with a ratio of 32.67 percent to GDP. There was an 8.68 percent increase in the debt-to-GDP ratio.

Director of the Center of Economic and Law Studies (CELIOS) Bhima Yudhistira explained that there are at least two types of debt: principal and interest. Interest debt is the type that must be paid annually by the government. There are two debt repayment schemes. The first is through tax collection.

"The state debt pays the government but the consequences for the community are through higher tax collections. If the interest payment burden is too large, the government will target tax revenues from the population," Bhima told VOI, Thursday, July 29.

This is the basis of the logic "every Indonesian child born bears the state debt." We count the number. It is certain that Indonesia will still have to pay debts until 2070 due to the global bond tenor which has a term of 50 years. So, millennials and gen z are sure to bear this debt.

Millennials, also known as Generation Y, are those born in the middle of the 1980-1995 period. While gen z are residents who were born in mid 1997-2000. How much debt must be paid? Each person must bear a debt of around Rp. 24 million.

This figure is obtained by dividing the total debt as of June, IDR6,554.56 by the total population, 271.34 million people. And this is not the worst part. From time to time, the debt that must be paid by everyone may continue to rise, given the way the government covers debt with debt.

In addition to tax collections, the government often issues new debts to pay off previous debts. "Dig the hole to cover the hole. It can be seen from the primary balance deficit," said Bhima.

The primary balance deficit is the difference between total state revenue minus state spending excluding annual debt interest payments. "The primary balance is negative if the total state revenue is less than state spending excluding interest payments on debt," Bhima said.

There are still other risks. If you look at the debt to service ratio (DSR) to state revenues, which reached 54.5 percent last June, it is not impossible for Indonesia to default. In the event of default, a country usually applies for a delay in payment of debt.

According to Bhima, Indonesia's DSR is already too high, considering that the DSR limit for developing countries is 25 percent. "More than that is dangerous. The sign is that the interest burden on debt is getting heavier. It is not in accordance with the ability of state revenues," said Bhima.

If it defaults, a country can apply for a postponement of debt payments. This was once done by Argentina who later entered the Paris Club. Indonesia's risk can be avoided by investors. So it's hard to get a loan. "Private and state-owned companies both have the cost of funds rising sharply. As Argentina failed to pay its debts, it is difficult to eventually become a developed country," Bhima said.

Not finished yet. The worst risk from debt for debt recorded by the government is the risk of capital outflow from tapering off the Fed. Capital outflow is the outflow of funds or capital from within to abroad, either directly (direct investment) or indirectly (indirect investment).

If the capital outflow from the Fed's tapering off is disrupted, the government will inevitably have to increase loan interest rates to keep attracting global investors. With Indonesia's most debt in the form of Government Securities (SBN), 87.14 percent, Indonesia is certain to fall further.

Interest for SBN with a ten-year tenor is estimated to rise up to 10 percent when the tapering off is carried out. The tapering off of the Fed is a reduction in the stimulus in the form of purchasing securities on the debt securities market. This means that there is no end to Indonesia's debt repayment. And everything will be heavier

In addition to SBN which reached 87.14 percent or equivalent to Rp. 5,711 trillion, the composition of Indonesia's other debt was foreign loans, which made up 12 percent or Rp. 830 trillion. The pandemic that slowed down the economy had an impact on increasing Indonesia's debt.

During June last month, the government signed two loan agreements. First, a loan from Agence Francaise de Development (AFD) worth 107 million US dollars on 8 June. This loan is used for research on marine natural resources in Indonesian waters.

Then the second, the most, a loan from the World Bank of 500 million US dollars on June 25. The loan is to support the strengthening of the health system, ongoing support to respond to the COVID-19 pandemic and readiness for vaccine implementation.

[MEMORY: The Origin of Indonesia's Foreign Debt]

Finance Minister Sri Mulyani said debt was an instrument to save society and the economy during the pandemic. Even so, many people believe that there are many other ways that the government should prioritize to cover up the issue of the pandemic and its crisis.

As discussed in the BERNAS article entitled Why Choose Debt? One way is through budget reallocation. As of June 2021 alone, there is still a budget of more than IDR 136 trillion that can be utilized. In addition, some government projects can also be shifted in advance to deal with the pandemic.

With an allocation value of 417 trillion, reallocation of infrastructure money is a good choice. Finally, the budget that can be used for the pandemic is cutting official travel, allowances and ministerial salaries. Now it is increasing again, the budget for three-star hotel facilities for members of the House of Representatives.

*Read other information about DEBT or other interesting articles from Ramdan Febrian Arifin and Yudhistira Mahabharata.