IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Can Indonesia’s Fiscal Policy be Sustained, with Exploding Debt?

Listed author(s):
  • Tari Lestari

    ()

    (Directorate of State Finance and Monetary Analysis (BAPPENAS))

Registered author(s):

    The debate over debt issues always becomes hot potatoes to be discussed. Recent data in debt position which accounted for 1.977,71 trillion IDR onDecember31st2012 has made a thousand eyes looking at The Central Government and questioning whether Indonesia should continue to rely on debt for development financing, and whether its debt level is dangerous for fiscal sustainability or not. This paper analyzes debt sustainability by using Natural Debt Limit (NDL) approach introduced by Mendoza-Oveido. In order to examine how the Indonesian government reacts to changes in its debt position, this paper estimates fiscal reaction functions using an econometric approach, namely Vector Error Correction Model (VECM). The result shows that: (i) natural debt limit for Indonesia is 32,3% over GDP; (ii) since 1992 the central government has run a sustainable fiscal policy, by reducing the primary deficit or increasing the surplus in response towards rising debt. Indonesia has a space to utilize more debt, but in a good manner (well-managed) especially aimed for productive and priority spending such as for infrastructure and education.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://ceds.feb.unpad.ac.id/wopeds/201415.pdf
    File Function: First version, 2014
    Download Restriction: no

    Paper provided by Department of Economics, Padjadjaran University in its series Working Papers in Economics and Development Studies (WoPEDS) with number 201415.

    as
    in new window

    Length: 34 pages
    Date of creation: Nov 2014
    Date of revision: Nov 2014
    Handle: RePEc:unp:wpaper:201415
    Contact details of provider: Postal:
    Jalan Cimandiri No.6, Bandung 40115

    Phone: (062)022-4204510
    Fax: (062)022-4204510
    Web page: http://ceds.fe.unpad.ac.id
    Email:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as
    in new window


    1. Campos, Camila F.S. & Jaimovich, Dany & Panizza, Ugo, 2006. "The unexplained part of public debt," Emerging Markets Review, Elsevier, vol. 7(3), pages 228-243, September.
    2. Enrique G. Mendoza & P. Marcelo Oviedo, 2006. "Fiscal Policy and Macroeconomic Uncertainty in Developing Countries: The Tale of the Tormented Insurer," NBER Working Papers 12586, National Bureau of Economic Research, Inc.
    3. Cassimon, Danny & van Campenhout, Bjorn, 2007. "Aid Effectiveness, Debt Relief and Public Finance Response: Evidence from a Panel of HIPCs," WIDER Working Paper Series 059, World Institute for Development Economic Research (UNU-WIDER).
    4. Hausmann, Ricardo & Panizza, Ugo & Rigobon, Roberto, 2006. "The long-run volatility puzzle of the real exchange rate," Journal of International Money and Finance, Elsevier, vol. 25(1), pages 93-124, February.
    5. Charl Jooste & Alfredo Cuevas & Ian C. Stuart & Philippe Burger, 2011. "Fiscal sustainability and the fiscal reaction function for South Africa," IMF Working Papers 11/69, International Monetary Fund.
    6. Campos, Camila F.S. & Jaimovich, Dany & Panizza, Ugo, 2006. "The unexplained part of public debt," Emerging Markets Review, Elsevier, vol. 7(3), pages 228-243, September.
    7. Danny Cassimon & Bjorn Van Campenhout, 2007. "Aid Effectiveness, Debt Relief and Public Finance Response: Evidence from a Panel of HIPC Countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 143(4), pages 742-763, December.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:unp:wpaper:201415. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Arief Anshory Yusuf)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.