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Fiscal sustainability and solvency: theory and recent experience in Indonesia

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  • Stephen Marks

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.

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  • Stephen Marks, 2004. "Fiscal sustainability and solvency: theory and recent experience in Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 40(2), pages 227-242.
    • Handle: RePEc:taf:bindes:v:40:y:2004:i:2:p:227-242
    DOI: 10.1080/0007491042000205295
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    References listed on IDEAS

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    1. Bravo, Ana Bela Santos & Silvestre, Antonio Luis, 2002. "Intertemporal sustainability of fiscal policies: some tests for European countries," European Journal of Political Economy, Elsevier, vol. 18(3), pages 517-528, September.
    2. Ross McLeod, 2004. "Dealing with bank system failure: Indonesia, 1997-2003," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 40(1), pages 95-116.
    3. Gael M. Martin, 2000. "US deficit sustainability: a new approach based on multiple endogenous breaks," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(1), pages 83-105.
    4. Mr. Nigel A Chalk & Mr. Richard Hemming, 2000. "Assessing Fiscal Sustainability in Theory and Practice," IMF Working Papers 2000/081, International Monetary Fund.
    5. Lloyd Kenward, 2004. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 40(1), pages 9-35.
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    Cited by:

    1. Hui, Hon Chung, 2013. "Fiscal sustainability in Malaysia: a re-examination," MPRA Paper 80018, University Library of Munich, Germany.
    2. Nauli Aisyiyah Desdiani & Syahda Sabrina & Meila Husna & Amalia Cesarina Budiman & Fachry Abdul Razak Afifi & Alin Halimatussadiah, 2022. "Local Budget Resilience in Times of COVID-19 Crisis: Evidence from Indonesia," Economies, MDPI, vol. 10(5), pages 1-18, May.
    3. Ivantia S. Mokoginta & Ria Marisa Stephanie, 2015. "Structural breaks and fiscal sustainability of the Indonesian government budget," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 7(1), pages 33-47, April.
    4. Jaka Sriyana, 2010. "Multi period shocks roles on government spending in Indonesia," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 2(3), pages 251-264, April.

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