The Indonesian Government Debt Transformation

In terms of the sources of funds, Indonesia's sovereign debt has been transformed significantly from the East European debt crisis and the policy of printing money to finance the government budget deficit during the Soekamo era, to bilateral and multilateral schemes during the Soeharto era. Subsequently Indonesia has been actively looking for loan in the capital markets in Indonesia and the international capital markets. Yet the purpose for getting loans basically is still the same, namely to finance the government budget deficits. The debt crisis happened due to the Asian financial crisis in 1997-1998 which provided painful lesson tliat forced the government to turn to the second Paris Club for debt rescheduling. The establishment of a debt management office within the Ministry of Finance lias become urgent needed. Since 2000 a debt management office has been established under the Ministry of Finance. This new body is not only responsible for managing the debt portfolio properly but also to raise new debts especially debt with a rupiah denomination. Greece's debt crisis is a reminder tliat domestic currency denomination has not made the country immune from debt solvency and sustainability problems, in particular when the debt is mostly owned by foreign investors, which is then considered as foreign debt. It could also provide a temptation for a country to raise debt in a similar fashion with the Ponzigame trap.