In his article on CGI in Kompas, economist Iman Sugema says that a group of economists has convinced the government that CGI was still needed; and that even today a lot of people still believe that we must seek advise from westerners--a legacy, he alleges, that has been passed on to us since the days of colonialization and which reflects the impotence of the educated to get out from the trap.
Ironically, though, the next thing suggested is for Indonesia to look for domestic sources of financing. While this may answer the question on how the country can borrow better, it already assumes that the poor country does need to borrow, like fish needs water before it can live.
Behind the suggestion lurks a fallacy that such debt is harmless because "we owe it to ourselves." Iman’s suggestion contains two fundamental errors. While most of the arguments here rest on Robert Murphy’s (see footnotes), they add up to my arguments in the previous posting.
First, it ignores the fact that not all Indonesians are equal. Most Indonesians are non-taxpayers. Any debt incurred by the government can only be paid back through taxing its subjects. By taxing us. With the notoriously low taxpaying rate this country is, only a “handful” of tax-paying citizens will suffer on net while more people get away Scotch free.
(Here, I am not implying the government should tax more or should tax more people. I almost go along with Tata Mustasya when he, quoting Adam Smith, reminds that the government ought to practice easy taxing—except that I have to add here that his good reminder will probably just evaporate into air, since virtually nobody reads Smith anymore, the paradigm of our age having been such as to maintain the disastrous doctrines summoned once by Lord Keynes while most economists today preoccupy themselves in molding them so as to meet postmo needs.)
Second, it reflects too common a failure in seeing the perils of debt. Deficit spending is no mere accounting exercise. When our government buys, it eats up resources. And these resources might have been devoted to other purposes, e.g. to the production of capital goods.
It makes a difference if the government, with tax revenue of say Rp 500 trillion, decides to spend Rp 500 trillion versus Rp 1,000 trillion. If the government decides on the later case, it will reduce the amount of gross investment, and, in effect, production in future decades will be lower than otherwise.
Should we overlook the fact that foreign individuals and governments are financing our wastefulness by buying RI bonds? Does domestic borrowing mean “we owe it to ourselves?” Apparently, not so.
At least Binny Buchori is being more careful in her article saying that if Indonesia needs to borrow, it has to advance with some conditions: all debt will have to comply with international conditions on aid effectiveness--namely that the disbursed funds should be for the need of Indonesia, not to procure goods or services from crediting countries, and that it takes the form of untied loans. Well, I say, her idea on struggling for debt reduction is worth trying.
The most pertinent question the Indonesian people must address is: do we need to borrow? Why, what should we borrow for? To date, no clear explanations have ever been given as to why our government has repeatedly borrowed. We do not know what items within the state budget have required repeated borrowing. Thus investigation and scrutiny are in order.
As far as we are concerned, we must demand ourselves to stop thinking in aggregates. We must be clear with this fundamental issue before our government can, if ever, walk down the borrowing path again.
Sources:
Binny Buchori, Setelah CGI Berlalu, Kompas 31 Jan. 07,
http://www.kompas.co.id/kompas-cetak/0701/31/opini/3277750.htm
Iman Sugema, Agenda Pasca-CGI, Kompas 30 Jan. 07
http://www.kompas.co.id/kompas-cetak/0701/30/opini/3275732.htm
Robert Murphy, Government Debt Has No Upside, Jan 16, 06,
http://www.mises.org/story/2006
Tata Mustasya, Ilusi Tentang Pemerintah, Kompas 29 Jan.07, http://www.kompas.co.id/kompas-cetak/0701/29/opini/3263582.htm
Ironically, though, the next thing suggested is for Indonesia to look for domestic sources of financing. While this may answer the question on how the country can borrow better, it already assumes that the poor country does need to borrow, like fish needs water before it can live.
Behind the suggestion lurks a fallacy that such debt is harmless because "we owe it to ourselves." Iman’s suggestion contains two fundamental errors. While most of the arguments here rest on Robert Murphy’s (see footnotes), they add up to my arguments in the previous posting.
First, it ignores the fact that not all Indonesians are equal. Most Indonesians are non-taxpayers. Any debt incurred by the government can only be paid back through taxing its subjects. By taxing us. With the notoriously low taxpaying rate this country is, only a “handful” of tax-paying citizens will suffer on net while more people get away Scotch free.
(Here, I am not implying the government should tax more or should tax more people. I almost go along with Tata Mustasya when he, quoting Adam Smith, reminds that the government ought to practice easy taxing—except that I have to add here that his good reminder will probably just evaporate into air, since virtually nobody reads Smith anymore, the paradigm of our age having been such as to maintain the disastrous doctrines summoned once by Lord Keynes while most economists today preoccupy themselves in molding them so as to meet postmo needs.)
Second, it reflects too common a failure in seeing the perils of debt. Deficit spending is no mere accounting exercise. When our government buys, it eats up resources. And these resources might have been devoted to other purposes, e.g. to the production of capital goods.
It makes a difference if the government, with tax revenue of say Rp 500 trillion, decides to spend Rp 500 trillion versus Rp 1,000 trillion. If the government decides on the later case, it will reduce the amount of gross investment, and, in effect, production in future decades will be lower than otherwise.
Should we overlook the fact that foreign individuals and governments are financing our wastefulness by buying RI bonds? Does domestic borrowing mean “we owe it to ourselves?” Apparently, not so.
At least Binny Buchori is being more careful in her article saying that if Indonesia needs to borrow, it has to advance with some conditions: all debt will have to comply with international conditions on aid effectiveness--namely that the disbursed funds should be for the need of Indonesia, not to procure goods or services from crediting countries, and that it takes the form of untied loans. Well, I say, her idea on struggling for debt reduction is worth trying.
The most pertinent question the Indonesian people must address is: do we need to borrow? Why, what should we borrow for? To date, no clear explanations have ever been given as to why our government has repeatedly borrowed. We do not know what items within the state budget have required repeated borrowing. Thus investigation and scrutiny are in order.
As far as we are concerned, we must demand ourselves to stop thinking in aggregates. We must be clear with this fundamental issue before our government can, if ever, walk down the borrowing path again.
Sources:
Binny Buchori, Setelah CGI Berlalu, Kompas 31 Jan. 07,
http://www.kompas.co.id/kompas-cetak/0701/31/opini/3277750.htm
Iman Sugema, Agenda Pasca-CGI, Kompas 30 Jan. 07
http://www.kompas.co.id/kompas-cetak/0701/30/opini/3275732.htm
Robert Murphy, Government Debt Has No Upside, Jan 16, 06,
http://www.mises.org/story/2006
Tata Mustasya, Ilusi Tentang Pemerintah, Kompas 29 Jan.07, http://www.kompas.co.id/kompas-cetak/0701/29/opini/3263582.htm
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