JAKARTA (TheInsiderStories) – Indonesian President Joko Widodo has expressed his concern over the government debt position that has reached Rp 3,271.82 trillion (US$246.00 billion) or equivalent to 27% of gross domestic product as end of March. Although the amount relative to gross domestic product (GDP) is still manageable, the repayment must be accelerated, said a senior minister said.
Coordinating Minister for Economic Affairs Darmin Nasution, said the President warns the Finance Ministry to manage the government debt wisely, so that it does not create excessive financial burden to the State Budget. He added most of the government debts are in Rupiah denomination but majority of them are held by foreign investors.
“The President has asked (the Finance Minister) to really pay attention on our debt level. Although the debt level in term of percentage to GDP is considered manageable, its interest level and installment must be monitored and calculated well so that it is still in safe level, otherwise it will reduce the State Budget’s fiscal space,” Minister Darmin said.
Minister of Finance Bambang P.S. Brodjonegoro added the debt to GDP ratio is lower than the neighboring countries, such as the Philippine and Australia which stands at 36 percent to GDP, Malaysia at 56 percent, and Thailand at 44 percent to GDP. In fact, it is far below the United States and Japan of more than 100 percent to GDP.
However, he added, the level of debt to GDP ratio cannot be used to determine whether a country is going bankrupt or not. “Japan’s debt was two and a half times its GDP at 246 percent. Yet, it remains a developed country and of course it will not go bankrupt. In fact, it is the country with the third largest GDP in the world,” he said.
Furthermore, the government debt is necessarily needed to promote and accelerate economic growth, since it will be used to finance government’s expenditure and investment (fixed capital formation). The finance minister pointed out that the global uncertainty and the downward trend in commodity prices in 2015 has led to an economic slowdown.
Debt will bring positive impact, he added, as long as it is spent for productive sector of the economy; not only for economic growth, but also for people’s welfare.
“Debt will bring positive impact as long as it is used for productive expenditures, because it will be used for our capital expenditure, well-targeted subsidy, so that the economic growth will be maintained and people’s welfare will rise,” he said.
Langgeng Subur, an official at the Finance Ministry further explained that the average maturity of the government debt is currently at safe level of 9.7 years. Moreover, the portion of rupiah-denominated debt has risen to 52.6 percent of total outstanding debt.
Lastly, 86.2 percent of total debt has a fixed interest rate, hence it is relatively safe from the changes in the global interest rate adjustments. (*)