Indonesia’s Debt Sustainability

(Formerly titled: Our Zero-Deficit Moveable Feast)

Wealth—personal or national—is created through accumulation of savings earned from production, not consumption. Adam Smith, an ethics professor, in The Inquiries to the Wealth of Nations, underlined the roles of inter-state trade as nothing but an extension of production.

The global economic landscape is never a level playing field. To western countries, the notion has become a paradigm. Emerging economies try to refute it; developing countries don’t get it, or simply forget.

Of course, we're living the world that has increasingly ushered everyone to a fatal illusion mistaking spending as investing that the state of well being can be reached through consuming. We end up being lulled to living with myths or fallacies that regard effects as causes and relational possibilities as causal certainties.

Economics, meanwhile, always provides numbers that can be turned to for solace and comfort: indicators of the number of sacks of cement sold; the number of cars and motorcycles bought; the number of investment potentials, et cetera and so forth. It can always present figures to support any decision any government makes.

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It’s been years since Adam Schwartz wrote analytical accounts on Indonesia’s politics and economy. The book, titled beautifully as A Nation in Waiting, rings like a poem, suggesting some rays of hope that things will get better with the coming years in the country. No one ever asked what exactly he wanted to intimate with the title.

But, it should not be too hard to tell.

Since the era of our first president, Indonesian governments have developed the deadly habit of borrowing. While most of them may not stand against borrowing per se, it’s been growingly hard to deny that borrowing has been so detrimental it has only benefited a handful of leaders while putting the country into debt overhangs.

To sum up Indonesia’s economic history is accounts of wasted opportunities. The country has been making great mess with resources that belong to its future generation. Put more aptly, it’s been creating a sinful mess to the advantages of foreign sources through exploitations of resources that belong to the future generation.

Had the past foreign borrowings been useful, today’s government would not need them anymore. The lesson can’t be put more clearly; yet is not the one we want to learn; the governments, instead, have chosen to believe that there must be another way of borrowing.

And so the past five years have gone particularly more precarious. Through issuing bonds, the last two governments have had and maintained a new found way of borrowing spree, this time from domestic sources. In less than a decade, our domestic debts have soared to outsize the amount of its foreign debts.

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What on earth have all the borrowings, foreign and domestic, been for? To cover the budget deficit, some would say, and indeed they can present economic theories supporting that budget deficit is not necessarily a bad thing in itself. But which part of the deficit has exactly the government been wanting to finance? Until we probe into what exactly the purposes of our borrowing, we will not know when not to have a budget deficit. Actually, the latest fourth amendment of its constitution did pave the way towards zero debts; but it has been implemented like a moveable feast, not a resolute intent.

Indonesia’s budget plan for 2007 indicates that the government is about to set to borrow to pay for the cost of past borrowing. In what’s like a tell tale of self-delusion, its accounting strangely puts debt servicing as a source of financing. The fact remains that the severity of our debts is such that even if Indonesia decided to stop borrowing new loans this year, the remaining outstanding will still haunt Indonesian citizens until 30 to 35 years from now.

Restructuring is futile when new debts are joyously committed. Some NGOs, meanwhile, have existed to advocate the government to opt for offshore debt haircuts. Worthy endeavors; but success will only come from within not without. They have taken a diametric and punitive stance against the government. Their approach has been built mostly on some sort of governmental culpability that has understandably led to defensiveness. Some of our leaders may have been development criminals, but we must also admit one thing: we have not been able to govern ourselves with any other style than the one that has come with such a long period of habituation.

Moreover, the country has been musing on setting up a debt management office, to be financed yet through another series of new debts. Maybe it is important; maybe it is better to have one than none. What is definitely important to realize from the beginning and remember throughout our existence is that this country must not create an agency to institute borrowing.

High time that the issue were confronted beyond mere rhetoric. When is the time to really face the music? When is enough enough? Answers to all these have long been overdue--generations ago. The decision to borrow has become too dangerous to be left to the discretion of an incumbent government, the ruling one or the next to come. Efforts to start putting an end to this must come from a national rather than a cabinet’s consensus.

It must come from a strong national will. Will shall attend knowledge.