Introduction

The economic crisis in 1997 has led to massive public and private debts in Indonesia. Total public debt tripled from about $55.2 billion in 1996 to $152 billion in 2000, before declining slightly to $141 billion in 2001 (see Table 11.1). Much of this increase is mainly due to the unprecedented increase in domestic debt (Rp 700 trillion, or roughly $70 billion) in the form of bond issuance to cover the rising cost of banking bail-out and restructuring.

While a massive public debt is highly problematic, mounting private debt has also created other complications. The private foreign debt increased very rapidly from less than $19 billion in 1990 to about $55 billion in 1996. However, the private debt is often underestimated given the lack of proper data. In 1997 private foreign debt increased very sharply by about 50 per cent to $82 billion, but this was mainly because of better debt recording. In 2000 the private foreign debt remained high at almost $67 billion, while the private domestic debt was $60 billion — but this amount included the non-performing loans transferred to the government as part of the bank recapitalization programme of around $40 billion.

Figure 11.1 illustrates the size of Indonesia's external debt in terms of GDP, and it is clear that both private and public external debts have increased markedly during the crisis. There was a spike in 1998, mainly because of the massive currency depreciation and a sharp GDP contraction. The foreign debt/GDP ratio has declined since then but it remains high at more than 90 per cent of the GDP. Figure 11.2 illustrates the size of the public debt in terms of the GDP, which clearly shows the huge increase in domestic debt since 1998.

Public debt service payments accounted for around 25–26 per cent of the government's domestic revenue in 2001 and 2002, and this is just for interest alone. Domestic interest payments are expected to be at least twice as large as external interest payments, and the future stream of principal payments on both the external and domestic debts looks like a time bomb waiting to explode.