The government is dipping into its emergency funds, while debt\nrepayments are being delayed. If they resort to printing more money, the\nonset of hyperinflation will only be a matter of time.<\/p>\n
ON the brink of an economic crisis, nothing is more worrying than\nseeing the amount of available surplus budget balance (SAL) funds\nplummet. The government\u2019s emergency fund at Bank Indonesia (BI) has\nshrunk by more than Rp300 trillion (US$17.65 billion) in six months. The\nerosion of the SAL funds reflects one thing: the government\u2019s cash flow\nis in dire straits.<\/p>\n
SAL funds come from the accumulation of leftover budget funds from\nprevious years, which are kept in reserve. They serve as an emergency\nfund for covering budget deficits, financial stabilization, and capital\ninvestments in state-owned enterprises. As an emergency fund, SAL is the\nlast resort for financing, after expenditure allocations in the State\nBudget or debt have been made.<\/p>\n
Finance Minister Purbaya Yudhi Sadewa has twice withdrawn SAL funds:\nRp200 trillion (US$11.76 billion) and Rp100 trillion (US$5.88 billion).\nHe placed those funds in banks in the hope of increasing credit\nliquidity and stimulating the business sector. However, after the banks\nreceived those SAL funds, the economy stalled, industrial production\nweakened, and public purchasing power remained low.<\/p>\n
The business world is not suffering from a lack of credit, but rather\nfrom sluggish purchasing power caused by government spending not\nprioritizing a productive and labor-intensive economy. By the end of\n2025, bank loans had declined by 3 percent over the previous year. As of\nlast month, Rp2,500 trillion (US$147 billion) in loans remained\nunissued.<\/p>\n
Weakened industry has led to a decline in jobs, ultimately causing a\ndecline in purchasing power. This vicious cycle can be broken if\ngovernment spending focuses on labor-intensive projects. Furthermore,\ndisastrous management, allegations of corruption, the free nutritious\nmeal program, and the Red and White cooperatives, as well as defense\nspending, which uses 30 percent of tax revenue, have been unable to\nprovide jobs for the 7.4 million unemployed.<\/p>\n
Now, the Iran-Israel war is putting further pressure on the economy,\ncaused by the limited supply of crude oil due to the blockade of the\nStrait of Hormuz. This shortage has driven up oil prices, which causes\ninflation. The government\u2019s decision to maintain fuel subsidies has\nresulted in increased spending.<\/p>\n
Squeezed inside and out, the state treasury is in shambles as tax\nrevenues have also fallen due to the economic downturn. Another way to\nincrease revenue is to issue new government securities. However, bonds\nare also unpopular with investors. Capital outflows in the first quarter\nof this year came to US$1.7 billion, which only returned when the BI\nissued high-yield short-term securities. Consequently, efforts to raise\nfunds through debt require significant capital investment.<\/p>\n
This situation is the result of reckless government policies. Budget\ncuts are instead used to finance the root cause of the cash flow\nshortfall: government projects that have no economic multiplier effects.\nThe diversion of funds transferred to regions for the free nutritious\nmeal program and the Red and White cooperative program has led to mass\nlayoffs of government employees with work contracts in many regions. The\neconomy is sluggish, and unemployment is on the rise.<\/p>\n
These reckless policies are reflected in the declining index and\nprospects of various Indonesian economic indicators: debt, investment,\nand the weakening rupiah exchange rate. Purbaya flew to the United\nStates to convince investors to not continue withdrawing funds from\nIndonesia. He explained the government\u2019s policy after deriding World\nBank economists who had cut Indonesia\u2019s economic growth projection from\n5.11 percent to 4.7 percent. The International Monetary Fund (IMF) was\nso unconvinced that it offered loans\u2014a signal of a hopeless economy.<\/p>\n
If we look at government spending in the first quarter, the Rp120\ntrillion (US$7.06 billion) remaining in the SAL is only enough to cover\nroutine expenditures\u2014such as debt interest, civil servant salaries, and\nbasic needs\u2014for a single month, some observers stretch that to three\nmonths. The Prabowo administration is teetering on the brink of\nbankruptcy.<\/p>\n
Bank Indonesia must not resort to its ultimate weapon: saving the\neconomy by literally printing money. Doing so will reduce the value of\nthe rupiah, increase import costs, and even trigger hyperinflation,\nfurther weakening the economy.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/on-the-verge-of-bankruptcy-1777265496", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }