Measuring Debt Inflation Of IDR 418 Trillion In Four Months, Are You SURE It's Still Safe?

President Joko Widodo (left) with Minister of Finance Sri Mulyani (Photo: Cabinet Secretariat)

The information released by the Ministry of Finance (Kemenkeu) states that the government's debt has consistently increased by IDR 418.2 trillion in four consecutive months. In May, Indonesia's total liabilities amounted to IDR 7,002.24 trillion. This figure then rose to IDR 7,123.62 trillion in the period of June.

After that, the value of government debt continued to climb with each July of IDR 7,163.1 trillion, August of IDR 7,236.6 trillion, and finally September of IDR 7,420.4 trillion.

The government itself claims that the debt book is still relatively safe despite the swelling. What's the basis?

This, of course, refers to the State Finance Law Number 17 of 2003 Article 12 Paragraph 3 which is still valid today.

"The total loan (government) is limited to a maximum of 60 percent of Gross Domestic Product (GDP)," reads the regulation as quoted by VOI on Tuesday, October 25.

Debt Ratio Against GDP

The Ministry of Finance's fault noted that the debt-to-GDP ratio in June 2022 was 39.5 percent. Then it fell in July to 37.9 percent, then rose back in August to 38.3 percent, and continued to rise in September to 39.3 percent.

"In 2020-2021, the increase in debt ratio in Indonesia reached 10.8 percent. The percentage increase in the debt ratio was relatively high, but the increase was actually relatively low compared to other countries," said the ministry led by Sri Mulyani.

But, is Indonesia's debt really safe? The answer can be yes or no.

Yes, if you use reference ratios to GDP. But not if you look at the burden.

Just so you know, every year the government has to spend hundreds of trillions of money from the state budget only to pay debt interest. Previous editorial reports stated that Indonesia paid at least IDR 317.89 trillion in interest in 2020 or 19.4 percent of the country's total revenue in that period.

In fact, the amount of interest on debt that the government has to pay has shot up to IDR 405.9 trillion for the 2022 period. This figure is equivalent to 17 percent of APBN revenue in accordance with Presidential Decree 98/2022.

Bunga expense

The criticism of the interest on debt was in the spotlight of senior economist Faisal Basri. "Singapore, even though the debt burden is 100 percent of GDP, the interest is only 1 percent of state revenue, while Indonesia has (almost) 20 percent of state revenue," said Faisal.

The University of Indonesia academic assessed that the imposition of high interest was caused by Indonesia's strategy in issuing securities with a towering interest rate. Different things will be found when compared to the country of Bangkaon or Singapore.

"We get loans by providing an average interest rate of 6 percent. Singapore is 0.1 percent. This happens because Indonesia's risk is considered greater than Singapore's, such as political risk, then exchange rate risk, and so on," explained Faisal.

Meanwhile, economic observer at the Center of Reform on Economics (CORE) Indonesia Yusuf Rendy Manilet had told VOI about the determination of the debt ratio of 60 percent which was deemed inappropriate. He said, the percentage is too high for developing countries like Indonesia.

This debt ratio is a figure adopted from the Maastricht Treaty. The 60 percent figure emerged from the middle value of the government debt ratio of European countries at that time," he said.

According to Rendy, the characteristics of a large number of countries on the blue continent are clearly different from the conditions of the Republic of Indonesia. "From here, criticism points can be conveyed, because of course the fiscal conditions between European countries and developing countries (which later adopted this figure) are different," he said.

Rendy explained, in a report entitled Forward-LOCKing Macroeconomic Policies Re-examining Inflation and Debt Limits' published by UNESCAP, it was revealed that the basic points were the differentiators.

"It is said that the 60 percent figure is more suitable for countries that are categorized as developed countries. Meanwhile, the debt-to-developed countries ratio is recommended to be in the range of 40 percent level and does not last in a fairly long term," he said.

Hopefully the government can be trusted in managing state finances so that it can provide the greatest prosperity for the Indonesian people, as promised. The government remains committed to continuing to manage debt carefully," said the government through the Ministry of Finance.