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Researches on Debt Management



The important of debt management start to emerge when Indonesia was hit by Asian Crisis in 1997. The crisis has caused stagflation and high debt to GDP ratio for the Government of Indonesia (GoI). Government debt increased from US$55.3 billion before the crisis to US$137 billion at beginning of 2000. The debt to GDP ratio at that time was reaching 83 percent.

The consequences of this sudden increased in debt is the decrease in the ability of State Budget as fiscal stimulus. This is due to the high decrease in the expenditure for interest rate payments and installments. The role of fiscal policies was also changed from functioning as fiscal stimulus to functioning as fiscal sustainability. However, the little space for maneuver in the State Budget, playing fiscal sustainability role was also not an easy tasks. If the State Budget and the growth of debt were not carefully managed, therefore, the possibility of default would have high probability.


Recently, the importance of debt management emerges as the impact of Global Financial Crisis. In 2010, several European countries were at the brink of sovereign debt crisis. These countries are Portugal, Ireland, Greece, Spain, and Belgium. This debt crisis raises the concern on rising government deficit and debt levels across the globe. Many European government debts were downgraded and created alarm in financial markets. The recent development shows that International Monetary Fund (IMF) agreed to provide loan for Greece and Europe’s Finance Ministers approved a comprehensive rescue package worth almost a trillion dollars that aimed at ensuring financial stability across Europe by creating the European Financial Stability Facility.

From the above explanations it can be seen the importance of a sound debt management. GoI aware on the importance of this and continue to carefully manage its external debt. The debt management is intended to minimize the cost of borrowing that is expected will lead to ease the pressure of external debt burden to budget over the long run. In order to achieve such objective Government put priority on the following direction: gradually reduce budget deficit, reduce public sector debt to GDP ratio to the save level, tax policies reform, improve government spending efficiency, and develop effective public debt management. By applying those policies, GoI is successful in reducing its debt to GDP ratio, reaching 28.3 percent in 2009.

Although the GoI has manage to decrease its debt to GDP level, continues studies and researches in the topic of debt management are still important.

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