According to Bank Indonesia (BI) figures, Indonesia's foreign debts in the second quarter this year amounted to US$ 323.8 billion, up 6.2 percent, year on year (yoy). The rise was triggered by an increase in government debt, whilst private sector foreign debt declined. This shows that Indonesia's economy is still relying on government debt.
Government foreign debt in quarter two rose 18 percent to US$ 158.7 billion, while private sector foreign debt fell 3.1 percent to US$ 165.1 billion. Private sector foreign debt declined further than in quarter one, which was 0.5 percent lower than the previous year's first quarter.
Sectors that recorded debt growth were electricity, gas, and water supply. Meanwhile, the industry sector recorded slowing growth in external debt. The mining and financial sectors also posted bigger debt declines than in the first quarter of 2016.
Bank Central Asia (BCA) economist David Sumual said the decrease in debt indicates weak investment in the private sector, which is proportionate to the low prices of commodities. The main reason for this is low demand, which discourages private companies from seeking loans.
The manufacturing sector, for example, recorded increasing demand. But the volume was not significant because "There is still enough domestic capacity, so there is no need for expansion yet," David told Katadata Tuesday (23/8). (Read: Deficit Soars in 2017, Government Prepares to Borrow More)
Under these conditions it would be rather difficult to rely on the private sector to sustain the economy. This also means that government capital and infrastructure expenditure is needed to grease the wheels of the economy.
Bank Permata economist Josua Pardede had a similar view. He said that the sluggish economy holds firms back from expanding their businesses. However, private firms should make use of BI monetary policies to consider borrowing from domestic lenders instead of foreign ones.
"Corporate foreign debt will likely increase if the domestic economy improves significantly, followed by an increase in the number of mega state projects involving private firms," he said (Read: Budget Deficit Widens: Government Raises Debt by IDR 17 Trillion)
Sometime ago, BI deputy governor Perry Warjiyo said that most domestic firms opt to settle their debts when growth in turnover is declining. "(Businesses) prefer to pay their debts; Indonesian companies are paying off their loans early. That's why corporate foreign debt is declining," he said. The cause is decreasing domestic and global demand.
These conditions also caused banks' quarter two third-party funding to grow by only 5.9 percent, decelerating from the previous quarter's 6.4 percent. "Rather than hanging on to their money, corporations opted to settle their loans and foreign debts," Perry said.
Meanwhile, the government's foreign debt in quarter two rose 18 percent, higher than quarter one's 14-percent increase. Josua said the increase came with the issuance of Euro denomination government bonds (Euro Bonds) and yen bonds (Samurai Bonds). These bonds were issued in quarter two as a way to raising funds for the State Budget.
Therefore, quarter two's long-tern foreign debt rose 7.7 percent compared to the same period in 2015, while the short-term foreign debt fell 3.1 percent to US$ 41.5 billion.