From the government side, President Joko Widodo reacted angrily and denied that the current level of debt has been caused by his administration. Was the government unable to finance especially the infrastructure construction from other sources? There has been no clear answer to this other than the denials coming from the technocratic aspects of debt management. Meanwhile, the opposition such as the House vice-speaker Fadli Zon often pointed to the nationalist arguments in which he blasted the current debt level for the lack of sovereignity. It is however important to bear in mind that the opposition has offered no clear alternatives to this.
This foreign debt phenomenon has displayed that it is important to be armed with complete data and arguments to understand the concepts and practices of macroeconomic management. What is also notable to be absent from the debt debate is the elaboration of the state role in the economics in such a political year, where the election of regional heads is to be held in 2018 and the presidential and legislative in 2019.
Economists from both the debt-for-development supporters and the sceptics agree that in order to fulfill a high target of economic growth, 5 trillion Rupiah would be required whereby the government could cover a small part of it. The real challenge is how to involve the private sector within the infrastructure development with such a currently high level of state intervention through state-owned firms, which often deter the private firms from participating.
On one hand, the government spending is growing especially in the form of transfer to the regions as well as the inclusion of state funds to state-owned firms in order to sustain the progress of the president's infrastructure development programme. On the other hand, the government has already committed itself to regular spending for subsidies and other social net expenditures such as the national health service (BPJS Kesehatan). The challenge lies in how to boost the state spending in a more efficient and targeted manner, such as for subsidy and social safety net.
From the situation elaborated above, some lessons can be learned. Firstly, the fiscal situation of tax receipts is vulnerable and unsustainable, as it is growing slowlier than the expenditure, leading to few other options other than creating new debt. Secondly, it is urgent to turn around the situation of the receipt which is currently dominated by the VAT as well as the corporate taxes
Finally, the most difficult part is to ensure that the spending becomes more efficient as well as more targeted subsidy for the public through subsidy reform, as well as to simultaneously encourage the private sector to play a bigger role in the fast-growing infrastructure development.
Entering the political year of 2018-2019, it would be wise and beneficial for the government and the opposition to consider the lessons from the Chicago economist Milton Friedman which reads: One of the great mistakes is to judge policies and programs by intensions rather than their results.