What is the safe level of public debt for Indonesia?
That is the debate raging in Indonesia, as politicians ratchet up tension ahead of campaigning for next year’s presidential election.
The currency’s sell-off to levels not seen since the 1997-1998 Asian financial crisis is only intensifying the political wrangling as Indonesian President Joko Widodo’s opponents blame his debt-binge for the rout.
Photo: Reuters
The government says its debt level of 29 percent of GDP is safe and lower than that of peers such as Malaysia and Thailand, but the message is making little difference to voters worried about joblessness and rising borrowing.
“The debt issue has been popular at the grassroots and even in small coffee shops, people now talk about the government debt,” said Bhima Yudhistira, an economist at the Institute for Development of Economics and Finance in Jakarta. “Issues on debt and jobs are more popular compared to the economic growth issue, because not all people understand what is economic growth all about.”
Public debt has risen 40 percent to US$295 billion from about US$210 billion when Widodo, took power in 2014, official data showed.
Photo: AP
The government took on debt as the main source for funding its ambitious US$350 billion infrastructure program.
However, as a proportion of its US$1 trillion economy, Indonesia’s gross government debt is well below Malaysia’s 54 percent and Thailand’s 42 percent, IMF data showed.
Political parties are cherry-picking data by focusing on absolute numbers to back up their narrative and woo voters, Yudhistira said.
For investors, the worry is not so much the nation’s total debt as the relatively high exposure to foreign borrowing, making the economy vulnerable to global contagion. Official data showed that 40 percent of public debt last year was foreign-owned.
Alongside a current-account deficit of 3 percent of GDP, Indonesia’s foreign liabilities have made it among the most exposed in Asia to the sell-off in emerging markets this year.
The rupiah has slumped almost 9 percent against the US dollar this year and neared 15,000 to the dollar this week.
Authorities are trying everything from interest-rate hikes to import curbs to stem the slide. The currency was headed for its fourth straight weekly loss, the longest streak since July.
The looming election adds another dimension of concern. With campaigning for the presidential election starting in less than three weeks, the opposition led by former military general Prabowo Subianto is citing the ballooning debt as a sign of economic mismanagement by Widodo.
Ramson Siagian, a lawmaker from Subianto’s Great Indonesia Movement Party, said that Widodo has added about 1.1 trillion rupiah (US$73.97 million) daily to the nation’s debt since he came to power.
“The government is also not transparent about the amount of new government bonds issued just to repay the old matured bonds,” Siagian said. “This is dangerous, because the government just tries to close the old holes by digging new holes. This big burden will be carried over to the next administrations.”
Indonesian Minister of Finance Sri Mulyani Indrawati is defending the government’s record, a task that is becoming increasingly difficult in an environment where rumors spread quickly on social media.
The minister last week asked her officials to counter the out-of-context narratives from the opposition with short, easy-to-digest posts that appeal to millennials, about 90 million of whom are to vote in the elections on April 17 next year.
Indrawati last month was targeted by a social media hoax citing the minister as suggesting that the government would sell the tourist island of Bali to clear the nation’s debt.
She threatened legal action and appealed to people not to “believe in such slanderous and false news.”
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