Increase Government Debt is Safe Along to Expense Productive Spending

By : Herry Barus And Aldo Bella Putra | Thursday, April 05 2018 - 14:00 IWST

Bank Indonesia
Bank Indonesia

INDUSTRY.co.id - Jakarta - Looking for loans or debt is often an alternative for most people, companies and even countries to finance family life, business development and development of a country including Indonesia. The exact loan drawdown is adjusted to the needs and the ability to pay.

International Monetary Fund (IMF) data shows that Indonesia is listed as the country with the lowest level of debt in position 36 of 219 countries with the lowest debt compared with economic growth or brutto domestic product (GDP). Although the ratio of debt to GDP has increased from 23% in 2012 to 29% in 2017.

PT Bahana Sekuritas said that the current increase in debt is not a threat to the stability of the Indonesian economy. On the contrary, rising debt is offset by increased government productive spending, especially for infrastructure, education and health sectors.

"With the debt-to-GDP ratio still lower than other countries, the government still needs to increase infrastructure, education and health spending as these three become the basic capital for the success of Indonesia's economic and social development for the medium-long term," said Head of Research and Strategic Bahana Andri Ngaserin.

Productive work will not be achieved, without being supported by a more advanced level of education and health, as well as without the availability of roads, harbors and airports adequate for business needs, the cost of trying or investing in Indonesia will be much more expensive compared to other countries, which could ultimately affect the interest of foreign investment to enter Indonesia.

Compared to other neighboring countries in Southeast Asia with economic growth that is not much different from Indonesia, Indonesia's debt ratio to GDP is still lower than Malaysia which is 56%, Thailand 42%, Philippines 35%, and even Singapore recorded by 111%. Singapore with a large debt ratio is able to build a much better infrastructure than any other country in Southeast Asia, as well as Malaysia and Thailand.

Until last year, the government has built 794km of roads, 9,072m of bridges, 618.3km of railway lines and completed the construction of 3 airports. To improve education, the government has distributed 19.8 million Indonesian smart cards (KIP), provided School Operational Assistance (BOS) funds to 8 million students and provided scholarships to 364,400 people. To improve the level of public health, the government has distributed healthy Indonesian cards to 92.1 million people.

In the 2018 budget, the government increased infrastructure spending to Rp 410.7 trillion from Rp 388.3 trillion last year, which will be used to build 865km of new roads, 25km toll roads, 8,695km of bridges. Completed the construction of 8 new airports and continued construction of LRT.

The budget for education increased to Rp 444.1 trillion from Rp 419.8 trillion last year, which will be used among others to distribute 19.7 million KIPs, 56 million BOS funds, provide 401,500 scholarships to students, construction and rehabilitation of schools or spaces class around 61200.

This year's health spending increased to Rp 111 trillion from last year's Rp 104.9 trillion allocation, which is intended to provide and distribute 92.4 million healthy Indonesian cards, provide quality health facilities for 49 hospitals or health centers.

"To be able to compete in today's global trade, Indonesia needs to increase productivity, more efficiently, with lower cost levels so that it has added value compared to other countries," explained Andri. This can only be achieved if the government is able to provide adequate infrastructure so that in the end the economy will grow stronger, he explained.

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