No country for old men

I was roaming around the news on the web when I was suddenly stunt by this shocking fact. We know that Indonesian policymakers are now being hustled and bustled by the year on year Inflation target of 6.5 percent. And we also now that it would become a very hard-hitting job since the year on year inflation rate on February has mounted up to 7.4 percentage points.

But the condition which I found on Zimbabwe was hilarious, it's way beyond imagination. A 100.000 percentage point of year on year Inflation rate, oh gosh. There is a massive gap between the amount of money and goods being circulated, a typical situation for a poor country but alas it is still very shocking.

This gloomy description desolately contributes to the decrease in the total well being. It was reported that the average life expectancy rate for this country is ranging only from 34-37 years old. Well then, it reminds me of an Academy award winner movie entitled "No country for Old Men"

Governing The Market's Expectation

Not without notice, we have stepped our feet in the first quarter of year 2008. In this relatively short time, public have experienced many things in which they hold their breaths for. A grim shadow of the upcoming crisis continues to haunt every possible action as a consequence from the series of episode which always genial to the world. The subprime mortgage crises in The United States which then be complemented by the oil crises have functioned as a catalyst for numbness. With these precedent facts, a dingy description entitled the economic crises has potentially formed a negative expectation from the market. A dismal measure if which being prolonged could confirm the expectation. A prompt movement from the government is a necessary condition to cope with the confusion. An institutional duty which then be complemented by effective coordination and communication with other stakeholders like the Bank of Indonesia (BI), the Parliament and also the market.

Turbulence lead Stagnation

The contraction of the world’s economic capacity which are lead by the impediment of the United States’ economic growth and the rising of price from the world’s major commodity like oil and agricultural products have indeed pulled the Indonesian economic situation into a negative trend. The signals of slump could be noticed from the downward trend of public consumption as a consequence from the purchasing power impoverishment. This fragment would become natural if the movement of domestic economic structure came linearly with the global trend but it would become unnatural when it serves the opposite.

Take a look at Rupiah’s value, amid the positive campaign from the fed that cuts its interest rate to the very low level of 2,25 percent, the rupiah still look very sluggish to adjust from its initial level. An anomaly since the spread of the interest rate between BI rate and Fed rate has broaden in a way that it could act as an incentive to the fund owners to flood the Indonesian market with massive capital inflows which in turn make a leverage to the rupiah.

So, what is the problem actually? The keyword is expectation, in which the market still has negative expectation to the rupiah. An old story come to be retold, a story about decoupling effect which happens between the real economic sector and the financial sector, a story that still has not found the end. This fact contributes to the fragility of Indonesian economic base in which leads to the market distrust. One thing that should be noted is that the reason to invest in Indonesia, aside from the strong economic base, is because of the expectation from the investors to have future economic gains. The gap between the price of the stock and the issuance company performance could be seen as the positive expectation from them who prospect the increasing performance of the company, so that they could experience a stable profit in the future. In other words, the decoupling process between the real and financial sector should be seen as a rational economic bubble instead of a speculative one. The investors tend to expect the improvement of the real economic sector which can bring the sustainability of in the financial sector. Problem would arise if this expectation could not be fulfilled by the policy makers. Well, it happens now!

The expectation forming continues to become worsen with the prolonged case of BI’s Liquidity Assistance (BLBI) which involves BI’s high ranking officer. Credibility is at its stake, a very risky bet since credibility functions as a symbol to lead the market.

Long Run Solution for Indonesian Economy

Efforts to bring the Indonesian economy to its path is not like it has never been done before but it has not effectively done. The principles of a good macroeconomic framework are credibility, flexibility and political legitimation. Rule of law could create credibility if the rule is widely known and well understood by the public. With credibility, it will be easier to handle any economic turbulence with the policy instrument that is controlled by the economic authority. Credibility could function more when there is a transparent and an accountable framework in which strengthens political legitimation. Effective policy would merge up if the policy makers have the ability to react promptly in every unprecedented shock.

Credible policy makers are those who make the policy with respect for transparency. With the high level transparency, any economic shock would be easily diminished. Without transparency, every policy with regards to economic target and fiscal rule would become obsolete since the public could not compare between the target and the realization. This could turn into economic imbalances. In the level of practice, transparency could be created by the policy makers by publishing the analyses about future economic prospects and complement it with the analyses from the former economic policies which are conducted in the previous period. Furthermore, accountability could act as a major supporting factor for the transparency establishment. With the presence of accountable policy, a strong political legitimation would then arrive. More over, the political legitimation would become very important since the policies being made should reflect national consensus. This in turn creates balance of power and also general responsibilities which could reduce the negative effect from the uncoordinated policy.

The anomaly

Public couldn't stop groaning upon seeing the anomaly in rupiah's value. It serves mismatch between trends and facts. The fuzziness like this could stumble the efforts to regain sound economic climate. One thing for sure, we need not only economic consensus but also political one.

Maafkan Ana Ukhti

Tatkala awan putih berubah kelabu

Rasa di hati mengharu biru

Mencoba tenang tapi tam pak ragu

Seakan ombak yang menderu

Segala rasa berkacemuk di hati

Mencoba mencerna yang tersirat

Dalam pesan yang membuat jantung berdegup

Ditengah gegap dan gagap

Sungguh ukhti, bukan maksud ana untuk menusuk hati

Entah bagaimana ana harus meminta

Semua terasa begitu samar

Semua terasa begitu nanar

Tak kuasa hati ini ukhti

Membereskan yang terserak

Merapikan yang beriak

Menenangkan yang bergejolak

Awan kelabu jakarta kini terasa begitu gelap

Tatkala permintaan maaf ini tak segera ditanggap

Bila permintaan maaf tidaklah cukup

Biarlah rangkaian kata ini menenangkan hati yang sempat terkesiap

Maafkan ana ukhti....

Waktu

Sang waktu pun mulai menapak
mulai menjejak
mulai mengajak

Nurani pun mulai bijak
seiring sang waktu mengajak
untuk menapak
dan menjejak

Merindu

Jauh membuat rindu
Tak ubahnya bagai duri
Setiap saat menghujam hati
Bak pisau tajam diasah

Asa kini menggumpal
Asa kini berkumpul
Memicu ikhtiar
Bergantung doa

Sungguh Robbi
begitu aku mencintainya
cinta dalam dakwah
cinta dalam tautan harokah

Ya robbi
tak kuasa rasa ini
memendam rindu
teringat memori lalu
saat kami memadu

Kuatkanlah hati ini ya robbi
Berjihad dijalanmu
memadu kasih
Mengharap barokah

The Shout out

To the youth

who desire glory

To the Islamic community

who is in uncertainty

and goes astray

To the heir of civilization:

who has carved a remarkable achievement

in the pages of history of human being

To each and every Muslim:

who is convinced of his/her own future

as world leader and happiness seeker

in the after-life.

To all of them

we present this works.

“And fight them until persecution is no more, and religion is for Allah.”

Paket Minim Makna

Untuk kesekian kali, Menko Perekonomian Boediono mengeluarkan paket kebijakan . Namun, terasa sangat hambar ditengah pelbagai permasalahan pelik yang mendera bangsa. Selama periodenya, sudah lima kali kebijakan ekonomi diterbitkan. Yakni paket insentif 1 oktober 2005, paket kebijakan Infrastruktur 17 februari 2006, paket kebijakan perbaikan iklim investasi 2 maret 2006, paket kebijakan sektor keuangan 5 juli 2006 dan terakhir 12 Juni 2007 bertajuk paket kebijakan percepatan pengembangan sektor riil dan UMKM.

Paket yang ditujukan untuk menyenangkan publik, justru membuat semakin berteriak jengah. Seperti sebelumnya, paket kebijakan tersebut hanya bagus dalam rancangan. Namun lemah dalam penerapan di lapangan. Pembenahan sektor riil memang sebuah aksi yang sangat dinanti, tetapi paket yang baru diterbitkan dirasa belum cukup taji untuk membenahi negeri.

Tak sentuh substansi

Paket teranyar dalam Inpres Nomor 6 2007 itu, meliputi kebijakan perbaikan iklim investasi yang memuat 41 langkah. Yaitu, reformasi sektor keuangan memuat 43 langkah, percepatan pembangunan infrastruktur 28 langkah, serta 29 rencana aksi terkait dengan UMKM. Keseluruhan aksi dan rencana tersebut, sepertinya tidak akan berjalan mulus. Karena hal itu dipenuhi aspek birokrasi yang menimbulkan kerumitan tersendiri saat bersentuhan dengan ranah implementasi.

Cermin kegagalan bisa dilihat dari data sepanjang tahun 2005 - 2006, paket kebijakan ekonomi

yang diharapkan sebagai pendorong utama pertumbuhan, belum memberikan hasilnya. Hingga Triwulan III tahun 2006 Pembentukan Modal Tetap Bruto (PMTB) hanya tumbuh 0,80% dibandingkan periode yang sama tahun sebelumnya dan kontribusinya terhadap PDB hanya sebesar 21,24%. Perlambatan pertumbuhan investasi tersebut sebenarnya telah dapat dideteksi sejak awal tahun 2006. Pada periode tersebut gejala perlambatan tidak saja tampak dari kecenderungan perkembangan pertumbuhan investasi yang melambat (investment slowdown) tetapi juga pergeseran struktur investasi (investment structure shifting). Pergeseran nampak pada investasi asing. Pada tahun 2004, pangsa investasi asing di sektor sekunder masih berkisar 60,93% sementara di sektor tersier sebesar 39,28%. Tahun 2005, kondisi tersebut berbalik di mana pangsa investasi asing di sektor sekunder turun menjadi 39,38% sementara di sektor tersier naik menjadi 56,14%. Kelemahan dan kegagalan paket kebijakan tersebut tak pelak merupakan buah dari buruknya realisasi di lapangan yang timbul seperti mata rantai, atas program birokrasi yang berbelit serta menyusahkan.

Kerumitan birokrasi dapat terlihat rendahnya realisasi penyerapan anggaran. Realisasi dua bulan pertama tahun 2007 baru mencapai Rp1,3 T, lebih rendah dibanding realisasi periode yang sama tahun 2006 yang mencapai Rp1,7 T. Sehingga, tidak sulit untuk membayangkan jika program yang sifatnya rutin saja masih terkendala jalannya apalagi program yang belum jelas arahnya.

Apa yang terjadi pada sektor riil?

Stabilitas makroekonomi yang tercapai belum diikuti dengan perbaikan signifikan di sektor riil. Hal itu mengindisikan bahwa terdapat mekanisme yang tidak bekerja dengan maksimal untuk mentransformasi stabilitas makroekonomi kepada perbaikan sektor riil. Ada tiga alasan terkait dengan kondisi tersebut, pertama: adanya time lag untuk penyesuaian dari stabilitas makroekonomi menuju perbaikan sektor riil. Kedua; adanya hubungan yang saling terpisah bukan saling melengkapi antara sektor keuangan dan sektor riil. Kondisi tersebut sangat nampak pada gagalnya peran perbankan menjadi sumber pendanaan investasi sektor riil. Dana perbankan justru di parkir di SBI. Ketiga, orientasi kebijakan pemerintah fokus pada upaya stabilitas finansial. Sektor industri pada tahun 2006 kembali ke titik yang sangat memprihatinkan. Setelah mampu tumbuh 7,5% (tahun 2004), dan 5,85% (tahun 2005), pada tahun 2006 hanya tumbuh 4,8%. Meskipun pada triwulan I 2007 sektor industri pengolahan tumbuh sebesar 5,67%, akan tetapi pertumbuhan ini melambat dibanding dengan 2 triwulan sebelumnya.

Dengan demikian hal itu hampir terjadi di semua sektor industri termasuk makanan, minuman dan tembakau; tekstil, barang kulit dan alas kaki; barang kayu dan hasil hutan; kertas dan barang cetakan; semen dan barang galian; dan industri lainnya mengalami pertumbuhan negatif.

Kondisi itu diikuti dengan pertumbuhan yang rendah, sehingga tidak bisa diharapkan untuk mendorong pertumbuhan ekonomi serta menyerap tenaga kerja.

Kemerosotan pertumbuhan juga terlihat dengan semakin melemahnya peringkat daya saing Indonesia di dunia berdasarkan laporan World Competitiveness Yearbook. Pada tahun 2006 kita hanya menduduki peringkat 60 kalah jauh dibandingkan dengan Malaysia (23), Thailand (32), Filipina (49) dan India (29).

Pelambatan pertumbuhan sektor industri tersebut terjadi sejak kenaikan harga BBM pada bulan Oktober 2005 yang memberikan beban cukup berat bagi ongkos produksi.

Penyebab merosotnya pertumbuhan sektor industri adalah, pertama rendahnya investasi yang menggerakan sektor industri pengolahan sehingga tidak terjadi ekspansi usaha atau pembukaan usaha baru. Kedua, daya saing masih rendah terkait dengan persoalan iklim usaha, birokrasi, dan infrastruktur serta aturan ketenagakerjaan. Ketiga, beban ongkos produksi karena kenaikan BBM 2005. Keempat, ketidakjelasan kebijakan pengembangan industri.

Di sisi lain sektor industri menemui masalah klasik yang sangat serius, yaitu masalah ketersediaan bahan baku, kekurangan pasokan energi dan praktek ekonomi biaya tinggi. Hal itu bukan masalah yang baru muncul, tetapi masalah kronis yang belum mampu dipecahkan oleh pemerintah hingga kini

Awan gelap di 2007

Selama paket kebijakan ekonomi yang diterbitkan belum mampu mengkonversikan investasi jangka pendek yang mendominasi pasar Indonesia menjadi foreign direct investment. Maka jangan harap kecemerlangan sektor finansial akan menular kepada sektor riil. Celakanya data tahun 2007 menjadikan perjuangan untuk perbaikan sektor riil menjadi bertambah berat. Proyeksi perbaikan dibayangi ketidakjelasan, pertumbuhan sektor konsumsi pada kwartal pertama tahun 2007 lebih rendah dari pertumbuhan ekonomi. Pertumbuhan konsumsi adalah 4,78% sementara pertumbuhan ekonomi mencapai besaran 5,38%. Hal ini tentunya menyisakan masalah di masa mendatang, karena perbandingan data ini mengindikasikan belum pulihnya tingkat kepercayaan masyarakat. Tampak jelas bahwa tingkat kepercayaan masyarakat yang rendah, menyebabkan tingkat konsumsi masyarakat lebih rendah dibandingkan dengan tingkat pertumbuhan ekonomi. Masyarakat lebih suka untuk menginvestasikan dana ke sektor jasa keuangan yang memberikan yield yang tinggi dibandingkan untuk berinvestasi ke sektor riil.

Kenyatan pilu tersebut kemudian diperparah dengan proyeksi mengerikan dari Gubernur Bank Sentral AS Alan Grenspan yang memperkirakan arus balik banjir likuiditas dari pasar negara-negara berkembang. Sungguh, hal itu jelas tidak bisa ditangkal melalui paket yang mempunyai time frame jangka panjang sementara potensi reversal memiliki time frame jangka pendek. Mismatch tersebut pada gilirannya menyebabkan sebuah ironi kebijakan. Sehingga tepat kiranya apabila paket kebijakan ekonomi tersebut ditasbihkan sebagai paket minim makna.

Oil Price, Green House Gas and Economic Growth

The rising in oil price to its psychological level has undoubtedly created some growing concerns among the world’s society. Many solutions were being offered, from the most rational unto the irrational one. The concerns are mounting since the OPEC meeting has a very little impact on the price stabilization. Observers point out consumption rate as the main cause of the oil price surge. Restriction in consumption is viewed as a necessary condition to stop the oil price hike. This restriction is also viewed as a main condition to reduce the green house gas emission as a result for the abundant use of the fossil fuel. But is this restriction is necessary? Wouldn’t it only lead to a slower economic growth? Is it right to sacrifice a long term achievement to a short term shock? This article aims to answer all of these questions.

Restriction in consumption equals to impotent ion

From the weekly time series data ranging from 1997 until 2007, the trend in oil price hike will surely continue. An oil price projection using the Auto Regressive Integrated Moving Average (ARIMA) model which I had done in Asia Pacific Initiative Forum at Keio University, justifies the presumption. The oil price will go beyond its psychological level at US$ 100/barrel, and will continue to skyrocketing. Moreover, the oil price consumption growth rate is believed to play an important role in the oil price formation.

With the inelastic structure of oil price in terms of demand, this projection is making sense. The inelastic structure creates a huge inertia momentum so that the current hike in the oil price could not refrain the consumption level. In other words, if the presence of alternative energy that can be used massively is still vague, the oil price will continue to hike beyond imagination.

Restriction in consumption is most likely to correlate with the slower rate of oil price hike, but this action has a major consequence. With the restriction, every economic agents will be forced to refrain their economic activities especially which corresponds with the using of fossil fuel. This restriction, instead of becoming a solution, will create problems which have a long run impact. The most noticeable fixture is the obstruction in economic growth. Although it is not the only source of the society’s well being but economic growth is still viewed as a necessary condition for welfare.

The economic growth slow down will constrain the creation of new job opportunities. The discourage workers resulting from the lack of job will contribute to the rising in unemployment rate. These unemployed people will become poor because the absence of sustainable income. In aggregate terms, this will only hampers the community welfare. Restriction in consumption is a form of impotent ion, because it functions as a constraint in empowerment. In addition, the act of postponing oil consumption in current time will not shift the long term price structure. This hypothesis is a rational one since the fossil fuel is un renewable resource so that in the future, with the absence of alternative energy, the fossil fuel consumption will go back to its natural level and leads the price to continue rising.

The Solution

Question then arise; what policy is the most suitable to stop the rising in oil price? The answer is quite simple: do nothing! This answer surely raises one’s eyebrows but it turns out to be the most realistic solution. As describes earlier, every intentions to intervene the price through restriction in consumption will be in vain since the price will go back to its natural level.

There will surely be some sacrifice with the do nothing policy. The most apparent sacrifice is the collapse of industries, but it is important to note: this will only happens in the short run. In the long run, with the industry’s increasing economies of scale, industry will have the capability to substitute the fossil fuel with other form of energy that is cheaper and friendlier to the mother earth.

This process could go on even without government intervention since the forcing tools come naturally from the rising in oil price. It is surely a good news not only for a long run economic growth but also for the sustainability of the Mother Nature.

The Hypothetical Kuznets Curve

Nicholas Stern, a British economist and a former World Bank’s official, published a review which described global climatic change and its economic impact in the late 2006. In the review, Stern mentioned about the Kuznets Inverted U Curve.

The curve briefly describes the existence of a quadratic relationship between economic growth and the emission of green house gas. In a low level of income, the bigger the income the bigger the oil consumption which results a higher emission level. But the curve has a turning point whereas in a high level of income, the bigger the income the lesser the oil consumption which results in a lower emission level.

Based on the theory, I make an analysis through a Vector Auto Regressive model which aims to see the relationship between GDP growth, the oil consumption rate and the emission rate. The result is quite similar to the curve’s description whereas in the long run, with the rising in the world’s GDP growth, the oil consumption rate will be decreasing resulting in a lower level of emission.

With all the logic describes earlier, it is wrong to restrict consumption, because it will happens naturally with the rising in price. The ability to develop alternative energy will increase along with the world’s GDP growth. With the do nothing policy, in the long run we will have more stable economic growth and cleaner environments.

The Need for Debt Cancellation; the Fact of Resource Drain in Indonesia

For years, the Indonesian government has a dominant dependency on the foreign debt to cover the budget deficit in the national budget (APBN). These debts are basically aimed to reach the Economic growth through the budget deficit policy. But, one could understand that this massive dependency has become major sustainability problems in the recent years, Indonesia has fallen into a debt trap. Theoretically if the external debt as a proportion of GDP exceeds 20-25 per cent, there is no luxury of increasing foreign borrowing, particularly in circumstances where it is likely to be counterproductive. Further foreign borrowing, in order to achieve what would be a temporary interest rate advantage, would question the country's credit standing; would increase the drain on the economy from foreign debt service payments; and expose the country to any sudden change in international sentiment. The fact is, Indonesia are now facing over 45% debt to GDP ratio.

The ignorance from the government in term of reducing the dependency from the foreign debt has drained the revenue resource in Indonesia. The result is that Indonesia is no longer spending a large part of its yearly budget on the basic needs of its populations, due to having to use it to pay off its debts. The proportion of debt repayment compared with the tax revenue has clearly gave a clear description of how the domestic resource being drained.

In 2007, there are 41.45 percent of the tax revenue (PPh and PPN) being drained to cover the debt payments. The condition has resulted in the loss of suppleness in the national budget to use its domestic revenue for reaching the development goals such as reducing unemployment rate and eradicating poverty. In 2007, Indonesia spent 24.3 percent of its budget on servicing debt, compared with 3.08 percent on health, 0.06 percent on employment and 10.3 percent on education. The needs to pay its debt have undoubtedly driven the government to have a bigger proportion of natural resource based revenue. So, besides creating a problem in the people’s welfare, the burden of foreign debt has also created a massive depletion of the natural resource. The fact of deterioration of the natural resource because of the external debt burden has been sounded by WALHI on the CGI Forestry Meeting 26th Jan 2000. They said that The international and domestic macro-economies including public debt and international financing are intimately related to the shrinking of Indonesia’s forests. International aid and loans make the Government of Indonesia dependent on rich countries and tend to drain resources from the South to the North.

In other words, deforestation increases as a direct reflection of the pressure to pay back principle and interest on national debt and actually reflects national and international social injustice. The need for state revenues (foreign exchange) has driven many developing countries towards debt-orientated development modes for many years. The result is that these countries must now pay for their increased debt through exploiting their natural resources. Combined with the fact that financial institutions provide loans for environmentally damaging projects, such policies are yet another underlying cause of forest destruction and degradation. Besides that, financial demands often cause the accumulation of levels of loans for projects, which have a tendency to be beyond the government’s effective control. A case in point is the ADB and Japanese government loans for the Philippine forestry sector.

These loans must be repaid in foreign currency through increased exports which are typically linked to the over-exploitation of natural resources. In other words, foreign debt has created more problems by export-orientated natural resource management, which will almost certainly destroy the resource base. For the international scoop, this gigantic drain of resources operating for more than a quarter of a century has changed neither the status of the dependant economies, nor the nature of their relations with the developed countries of the North. It contributes, on the contrary, to the ever increasing concentration of wealth, at national level in favour of the dominant classes of the countries of the South and at international level in favour of the countries of the North. It explains in large part the dramatic increase over the last few years, in intra and international inequalities and in relative and absolute poverty.

International debt repayment constitutes one of the forms of transfer of surplus produced by the countries of the South to the North and of that produced by the workers of the South to the capitalists of their own countries and to those of the North. This has tended to increase the rate of labour force exploitation in the South. In this way, developing countries and newly emerging market economies have had to transfer to their creditors, an annual average of 3.68% of their GNP (Gross National Product) during the decade following the crisis (1980-1989). In the past six years (1997-2006), marked by a series of financial crises and a growing polarization of the international capitalist system, this transfer rose to 6.20% of GNP.

So, if the external debt can cause all the trouble, why does the Indonesian government make the debt for the first place? As the Harrod-Domar Model suggest, the rate of economic growth can be achieve by accumulating the capital. If there is a savings gap, or in other words the capital accumulation is less than needed, the gap should be filled by borrowings from abroad. But this model has a major shortcoming that is the dependency on foreign debt along with the economic growth. Our concern is, the government still uses this obsolete model which in fact creates problems as mentioned above. Besides the failure of the model, the Indonesian government is often has unclear purpose for making the debt.

For example, back in the early 70’s when Indonesia had a major windfall profit because of the oil boom, the number of external debt had also increased tremendously. One could understand that at that time the rate of economic growth can be boost even without making debt.

So at that time, the government had an ample amount of money, because of the debt and the oil revenue, without knowing the priority of development. This error has undoubtedly creates problems in present and future generations. The Need For Debt Cancellation All of this phenomena has triggered the idea of having a debt cancellation, as the Alternative Treaties that were being established by “Concerns and Pledges of Development and Environment Social Movements and Non-Government Organizations (NGOs)” in the Earth Summit on 1992 that says the foreign debt is the most recent mechanism of the exploitation of Southern peoples and the environment by the North, thus adding an extra burden to the historical, resource and cultural debt of the North to the South; the more Southern countries pay the debt, the more they owe -- has generated massive net financial transfers from the poor to the rich, thus perpetuating a process of decapitalization, impoverishment and environmental destruction that has devastating consequences for the South; there are also negative impacts to the peoples of the North with taxpayers' money bailing out banks, growth in unemployment and an increase in drug abuse; decisive action on the debt will make resources more available for the promotion of socially just and ecologically sustainable development models; the indebtedness of Southern countries is rooted in a development model which is not responsive to the needs of the majorities of their populations, but rather involves the harmful exploitation of people, resources and the environment of Southern countries, through adverse terms of trade, trade protectionism and the power wielded by international capital by, for example, transnational corporations.

The main idea is the foreign debt in Indonesia only functions as a burden in the economy. There are massive resource drains that create a major shortcoming for the people. This resource is transferred to the creditor country which benefit them most and has a negative effect for the Indonesia’s budget sustainability. In fact, the foreign debt originates in the continuing economic dependence from the creditor countries, from which they continued to acquire manufactured goods with the increasingly lower income from their agricultural and mining exports.

To cope with this imbalance, Indonesia were obliged to accept foreign capital loans, with which they also sought to construct infrastructures and achieve a first stage of industrialisation (both tasks naturally entrusted to companies from the creditor countries), endeavours which not only failed, but turned out to be far more expensive than expected, implying even greater debt.

The gradual and partial cancelling the Indonesian debt is the consequence to the evidence of resource drain. The cancellation is therefore the tacit recognition of the collapse of a perverse model of development aid that must be substituted by more efficient and truly fair measures ensuring the presence of poverty alleviation and the natural resource preservation program in Indonesia.

Wrapping Things Up: Solution without Debt

Although the external debts have more flaws than benefits, the Indonesian government still holds its initial standings that is making more of the debts and refusing all the possibilities for proposing debt cancellation. The fact of resource drain has been presented repeatedly but there is still no change in position. The argument of the governments is always the same, they argue that they don’t have any other alternatives in covering the deficits whereas the proposal for debt cancellation will clearly shut the doors of making new debts. As far as I concern, the problems do not solely rely from the debt strategy, but it depends heavily in the success of strengthening the revenue side. The dependency on the debt, the external debt to be more specific, is the consequence of the government incapability in increasing domestic revenues so that every time the government wants to increase its spending, the debt is always be the dominant source of financing. Besides that, the easiness of drawing more debts has cause the government to be infected by the lazy fiscal regime. So the most suitable remedy in curing the debt dependency illness is by the tax reform. This solution is might be not the best of all but for the time being it is the most possible solution.