Indonesia : Managing Government Debt and its Risks
The Asian economic crisis has left Indonesia's Government deeply in debt. Government debt has increased from 23 percent of GDP before the crisis to about 83 percent of GDP in early 2000. Nearly three quarters of this increase is domestic debt to pay for bank restructuring. Though very large, the government's debt is manageable. Actions to rebuild investor confidence, keep real interest rates down, and renew growth are necessary. Moreover, actions are also needed in the following areas: 1) generating significant primary fiscal surpluses; 2) containing off-budget losses and counteracting fiscal risks; 3) aggressively selling government assets to reduce government debt; 4) rescheduling existing debt under international rules and seeking the best possible terms for new borrowing; 5) building capacity to manage debt well; and 6) establishing an effective domestic bond market. The report concludes that Indonesia can overcome its government debt burden with renewed growth and prudent fiscal management. But this will not be easily or quickly achieved. Sustained fiscal surpluses and asset sales will be important. So will actions to avoid additional new government debt and strengthen debt management capacity.
| Summary: | The Asian economic crisis has left
Indonesia's Government deeply in debt. Government debt
has increased from 23 percent of GDP before the crisis to
about 83 percent of GDP in early 2000. Nearly three quarters
of this increase is domestic debt to pay for bank
restructuring. Though very large, the government's debt
is manageable. Actions to rebuild investor confidence, keep
real interest rates down, and renew growth are necessary.
Moreover, actions are also needed in the following areas: 1)
generating significant primary fiscal surpluses; 2)
containing off-budget losses and counteracting fiscal risks;
3) aggressively selling government assets to reduce
government debt; 4) rescheduling existing debt under
international rules and seeking the best possible terms for
new borrowing; 5) building capacity to manage debt well; and
6) establishing an effective domestic bond market. The
report concludes that Indonesia can overcome its government
debt burden with renewed growth and prudent fiscal
management. But this will not be easily or quickly achieved.
Sustained fiscal surpluses and asset sales will be
important. So will actions to avoid additional new
government debt and strengthen debt management capacity. |
|---|