EDITORIAL: Handling foreign Currency

On what critics strike as a sharp increase in government and central bank foreign debt within the previous three years, the central bank’s monthly upgrades on debt have constantly stirred discussion. The latest data, published by Bank Indonesia last week, reveal Indonesia’s cumulative external debt at US$343.1 billion as of September, marking a rise of $46 billion over the 3 years of President Joko “Jokowi” Widodo’s government independently. 51 percent of the overall, or about $ 176 billion, is owed $167 billion from the private sector and the central bank and by the authorities.

Critics have derided the sharp debt increase because unsustainable and pointed out that throughout the 2nd fiveyear term (2009-2014) of the former president, Susilo Bambang Yudhoyono, our total external debt rose only by roughly $ 33 billion.

At a glimpse, the foreign exchange increase appears to be too high and inimical to prudent debt management. On the other hand, the issue of debt, whether foreign or national, government or private sector, shouldn’t be viewed in numbers, but should be evaluated by consideration of the main indicators of sustainable debt administration.

1 indicator is that the composition of debt maturities. Currently, 86.2 percent of the total external debt have been longterm liabilities, although only 13.8 percent are of the shortterm type. Another indicator — the proportion of debt to gross domestic product (GDP) — has significantly improved significantly, falling to 34 percent from 36 percent in September 2016. At that level, it is lower than in other countries. Likewise, the proportion of debt service to export earnings has declined from 46 percent in 2015 to 40 percent.

Yet more significant is the fact that the primary balance of the state funds, meaning that the government’s capability to meet its debt servicing burdens (installation and interest payment) has also improved. The primary balance deficit fell from 1.24 percent of GDP in 2015 to 1 percent in 2016. The target for this season is 0.7 percent.

These indicators show that, regardless of the growth in amount, our overseas debt has gotten more sustainable because private borrowers are authorised to hedge their foreign debt. More reassuring is the fact that monitoring and the recording of overseas exchange have improved a whole lot, so that some problems could be discovered early on.

From an economic perspective, the improved ratios show that the government can fully service its debt since the market and the nation’s productive assets have expanded along with the debt increase. They show that the foreign exchange has been well spent.

Even from a social perspective, the sustainability of debt has significantly improved, since debt service payments did not induce cuts in budget appropriations for services.

Government borrowing is inescapable in publicsector fund management, because debt enriches the growth potential of the economy through investment in infrastructure and human capital.

Source

http://www.thejakartapost.com/academia/2017/11/21/editorial-managing-foreign-debt.html

source http://www.nwsuburban-bankruptcy.com/editorial-handling-foreign-currency/