Beginning in January 2010, the world was shocked by the potential debt crisis in Europe. The average public debt in the 16 EU member states 84 percent of gross domestic product or GDP in 2010. That’s well above the maximum limit of public debt according to the Stability and Growth Pact, which is 60 per cent of GDP.
Germany, the famous disciplined fiscal stability, will suffer an increase in public debt from 78 per cent of GDP this year. While the French public debt reached 75.8 percent of GDP in the third quarter-2008. Greek public debt will reach 120 percent of GDP in 2010. (Kompas, January 4, 2010).
In the Asian zone. Japan reported debt would reach 53.5 trillion yen, equivalent to 597 billion U.S. dollars, for the fiscal year 1 April 2009-31 March 2010. This new record in the history of the country’s debt.
Japanese Finance Minister Hirohisa Fuji in Tokyo, December 8, 2009, has hinted the Japanese budget situation will face serious problems (Kompas, December 9, 2009).
Indonesia has had government debt ratios of 89 percent of GDP in 2000, while total liabilities reached USD 1234.28 trillion. In October 2009, the ratio of government debt fell to as low as 30 percent of GDP, but the nominal debt increased to $ 1602.19 billion.
Why do governments around the world tend to be indebted to finance budget country?
One of the basic platform that can explain this is the preposition that expressed two Nobel Economics Prize recipient, Franco Modigliani and Merton Miller. Both are popular with the formulation prepositions M & M I and II.
Modigliani and Miller mengasosiakan preposisinya in business institutions. We have shown a tendency directed the state’s financial management such as financial management firms. This is because the financial management of companies judged more efficient, transparent, and effective.
Preposition M & M I stated, the value of an institution does not depend on the structure of capital, whether debt or increase the capital injection from its shareholders. A company that decides to finance its business by 70 percent debt and 30 percent of the company’s capital injection is the same value, although the composition is reversed, 30 percent debt and 70 percent of shareholder capital.
In the realm of state finances, shareholders are the people. The contribution of the people as a shareholder done through tax payments. The greater the tax paid, the lower the dependence of these countries from debt.
European zone facing a difficult situation because of their debt burden increase, while the lower tax payments because people depressed global financial crisis that hit since the end of 2008.
Ironically, the debt is taken in large numbers in 2009 are used to restrain the impact of worsening of the crisis, in the form of fiscal stimulus. However, the fiscal stimulus was not able to sustain significant economic recovery.
Then, in which the position of Indonesia in 2010? Government bond issuance target Rp 175.6 trillion. This is much higher than the total government bonds issued in 2009, ie Rp 144 trillion.
Judging from the ratio of debt to GDP will be no decrease it. Nominal GDP in 2009, in the position of USD 5401.6 trillion, while GDP in 2010 to $ 5981.37 billion.
With the increasing debt value, debt to GDP ratio is expected to fall from 30 percent in 2009 to be lower in 2010. This means, of funds derived from debt will be less in sustaining economic growth and operations of government.
But, back to the prepositions M & M I, shareholders do like the choice of debt because it would raise income per share owned. However, they also must be ready with another situation, namely a secondary party.
This is because any profits received by the company must first be used to pay obligations to bondholders or creditors, just next to shareholder dividends.
Thus, the more debt the government would take greater state revenues used to pay interest and principal debt. The rest had other needs, including building infrastructure, social welfare, and so on.
Second preposition
On Preposition M & M II, Modigliani-Miller warned of the risk for companies that continually push new debt. The greater the debt is taken, the higher the cost will be paid if deemed defaulted.
Shareholders are not satisfied if some of its earnings eroded by the number of debt to be paid. This means, the government needs to take into account the cost of bond issuance and withdrawal of debt that will appear along with the withdrawal of new debt.
In 2009, the Ministry of Finance noted the cost savings bonds and the issuance of debt of about Rp 15 trillion.
However, the total cost of bond issuance and withdrawal of the debt was Rp 95.49 trillion. This is relatively high because almost equivalent to nine times the budget of commodity price stabilization programs that only Rp 10 trillion. Budget represents the cost of infrastructure in 2010, ie Rp 93.35 trillion.
Finance Minister Sri Mulyani Indrawati has said, every penny of the debt should be obtained for investment. With the investment, every penny can provide greater benefits from an initial capital.
However, it seems that the Indonesian people still need to be patient because the ratio of debt to GDP is still about 30 percent. It takes extra efforts to boost tax revenue to be the only source of replacement debt.
