Indonesia\u2019s external debt increased by 36.52 per cent between 2014\nand 2024; when President Susilo Bambang Yudhoyono ended his term, the\ndebt stood at only US$293 billion. However, as President Joko Widodo\nleft office in 2024, total external debt had soared to US$428 billion,\nwith approximately US$200 billion consisting of government debt.<\/p>\n
Economists have repeatedly warned the government that external debt\nhas reached unsafe levels based on the Debt Service Ratio (DSR), which\nexceeded 47 per cent last year. According to the IMF and World Bank, a\nsafe DSR ranges between 25 per cent and 35 per cent, representing the\nratio of total principal and interest payments to total national revenue\nover a specific period.<\/p>\n
Since 2020, defence spending utilising Foreign Loans (PLN) has\nincreased nearly fivefold compared to the previous five years. While the\nPLN allocation for the Ministry of Defence was only US$7.7 billion in\n2015, that figure surged drastically to US$34.8 billion in 2020.<\/p>\n
To date, the PLN allocation for weapons systems procurement has been\nset at US$34.8 billion, which is the quota until 2029 based on the\ndecision of the Minister of National Development Planning\/Head of\nBappenas. Whether this figure will remain stable until the end of the\ndecade remains a major question mark if the changes to the Blue Book\nduring 2020-2024 are used as a reference.<\/p>\n
Despite the recent change in Finance Minister from Purbaya Yudhi\nSadewa to Suahazil Nazara, the primary question haunting the Indonesian\nadministration until 2029 concerns fiscal discipline. There is a\nsceptical view that the implementation of fiscal discipline is\ndetermined not by whoever holds the Finance Minister position, but by\nwhoever serves as President.<\/p>\n
With current priority spending covering Free Nutritious Meals (MBG),\nthe National Development Plan (KDMP), and defence, alongside an\nincreasingly bloated bureaucracy amidst international economic\nchallenges affecting national revenue, is it possible for fiscal\ndiscipline to be practised? If the Finance Minister provides input to\nthe President regarding fiscal discipline, will that input be heard and\nimplemented through policy?<\/p>\n
In 2021, while Indonesia was battling the Covid-19 pandemic and the\nstate budget (APBN) experienced a deficit exceeding 3 per cent of GDP,\nthe Minister of Defence proposed to the President and Finance Minister a\ndefence spending programme worth US$124.9 billion for the 2020-2044\nperiod, to be executed during 2020-2024.<\/p>\n
That figure included US$79 billion for defence equipment, US$13.3\nbillion for interest payments over five stages of the Strategic Plan,\nand US$32.5 billion for maintenance and upkeep costs.<\/p>\n
Aside from the staggering value, another controversy regarding the\nproposal was the implementation timeline, which was set to run only\nuntil 2024, even though the programme officially spanned 2020 to 2044.\nIt is worth noting that at that time, fiscal discipline was still being\napplied by the government, so the proposal to use Foreign Loans as a\nfunding source was rejected, even though a draft Presidential Regulation\nhad been prepared.<\/p>\n
Considering that defence spending is one of the current\nadministration\u2019s priority programmes with significant fiscal\nimplications, it is not impossible that a similar idea to the one\nproposed in 2021 will resurface in the coming years. Briefly, such a\nprogramme would be labelled a long-term programme, yet the\nimplementation period, particularly for weapons systems procurement,\nwould only last about four years or even less.<\/p>\n
It is important to understand that the national political\nconstellation has changed compared to 2021, as has the direction of\nfiscal policy. There are several risks if the government decides to\nre-launch massive defence spending initiatives within a short timeframe,\naligned with the presidential term as per constitutional rules.<\/p>\n
First, the fiscal risk. Massive defence spending with such\nastronomical values\u2014assuming figures not far from the 2021\nproposal\u2014would place immense pressure on the government\u2019s fiscal space\nat a macro level. Such fiscal risk could prompt global rating agencies\nlike Moody\u2019s Ratings, Fitch Ratings, and S&P Global Ratings to\ndowngrade Indonesia\u2019s outlook or rating, with all the subsequent impacts\non financial markets.<\/p>\n
At a micro level within the defence sector, the potential fiscal risk\nis the closing of fiscal space for defence spending using the PLN scheme\nwhen the new administration takes power in the 2030s. A new President\nmay be unable to implement defence modernisation through acquisition\nprogrammes because there is no longer any fiscal space available for\nfurther borrowing.<\/p>\n
Meanwhile, the pure Rupiah allocation in the state budget (APBN),\nparticularly for capital expenditure, will be used for years to service\nthe principal and interest of debts, including those incurred since\n2015. It must not be forgotten that from 2030 onwards, Indonesia will\nbegin paying the principal and interest on the US$34.7 billion debt\nincurred during the 2020-2024 period.<\/p>\n
Second, the risk to the reliability of defence equipment. One of the\nconcerns in weapons system procurement programmes\u2026<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/managing-the-fiscal-space-for-long-term-defence-spending-1789628178", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }