Thesis Submitted

Abstract

Resource Drain In Indonesia And The Need For Debt Renegotiation With Japan

The aim of aid is clear which is to help the developing countries to reduce its poverty level through economic development channel. But, the fact is a contradictory one, aid in the form of debt for the developing countries does not function as a savior, the debts are more like a burden to the developing countries. This paper tries to prove the fact that external debts do not serve to the benefit for the developing countries but it is merely a tool for draining resources in developing countries. The proof will be explained through the case of Indonesia and Japan, the first one represents the developing countries as the debtor while the latter represents developed countries as the creditor. The series of data to uncover the fact will be analyzed through Vector Auto Regressive Model, Cointegration and Error Correction Model to which it will explain the relationship between Indonesia trade balance with Japan; the number of Indonesian external debts payments; and the GDP of Japan. As a supportive means, I will also employ cross section and panel data analysis to describe the increasing level of unemployment in rural areas as a relation to the debt that were being given mostly to the agricultural sectors. The evidence of resource drain from a foreign debt payment will determine the conclusion of the need for debt renegotiation.

Key words: foreign debt, resource drain, vector auto regressive, Indonesia, Japan