Fiscal sustainability and solvency: theory and recent experience in Indonesia

Abstract

A major challenge for Indonesian economic policy makers is to avoid the recurrence of conditions that could trigger a new economic crisis. One of the important dimensions of this challenge will be to conduct fiscal policy in a way that is sustainable, given the level of interest rates and the rate of growth of the economy. This paper synthesises various approaches to the measurement of fiscal sustainability that have appeared in the economic literature, relates these measures to the fundamental concept of fiscal solvency, and applies the framework to Indonesia over the period 1991-2003. The domestic and foreign debt positions of the central government are treated separately, to capture the influence of exchange rate changes on the relative costs of domestic and foreign borrowing. The empirical analysis indicates that Indonesia has met the fiscal sustainability criterion in recent years, except when the rupiah has depreciated heavily.

Roles of External and Domestic Debt in Economy: Analysis of a Macroeconometric Model for Indonesia

“…This grim economic picture is illustrated by the case of Mexico in the 1980s in its post oil bonanza. However, Radelet (1995) and Marks (2004) ensured that Indonesia's fiscal situation met the sustainability criterion.…”

“…In the present paper, we investigate the debt problem to different aspects by focusing on Keynesian and macroeconometric analyses. Meanwhile, some previous works related to Indonesia's debt are Radelet (1995), McLeod (1996), Usui (1997), Woo and Nasution (1998), Marks (2004), PPEFE-UGM and MoF (2004), and Lewis (2007). However, most of those studies investigated the problem using qualitative analyses.…”

Pembiayaan Defisit dengan Utang dan Ketahanan Fiskal di Indonesia

“…Beberapa penulis seperti Cohen (2000) dan Marks (2003) menggunakan parameter rasio utang terhadap PDB sebagai indikator ketahanan fiskal. Pertumbuhan utang luar negeri tidak boleh lebih cepat daripada pertumbuhan ekonomi.…”

Fiscal sustainability test: The case of Turkey

“…In general, fiscal sustainability is defined as the sustainability of the debt. Marks (2004) defined the fiscal sustainability as providing financial proficiency of government without making any arrangements and maintaining their current financial situation to ensure that the budget constraint. In other words fiscal deficit defined as sustainable as long as a government raises the necessary funds by borrowing Chen (2014).…”