Debt and Social Politics
Non-profit organization OxFam America in a report titled “An economy for the 99 percent”, released in January 2017, states that global economic imbalances between the rich and the poor are vast, which has become more worrying.
The title of the report is in line with former president Barack Obama\'s remark at the UN General Assembly in September 2016 stating that: “A world in which 1 percent of humanity controls as much wealth as the other 99 percent will never be stable. "
In relation to that, OxFam in 2015 estimated that 62 people controlled assets worth US$1.76 trillion, the equivalent of total assets owned by 3.6 billion people or half of the world\'s population with the lowest income (the marginal).
According to an OxFam January 2017 report, eight people have wealth equivalent to the wealth of 3.6 billion people.
If the stark portrait of global wealth is so scary, what about in the Unitary State of the Republic of Indonesia (NKRI)? The main issues in Indonesia\'s economic development are poverty and economic disparity.
The portrait of economic growth in September 2016 can be seen from the percentage of absolute poverty level of 10.70 percent or 27.76 million people, Gini coefficient of 0.394, open unemployment rate of 5.33 percent, or 28.01 million people, and Human Development Index (HDI) of 70.18 (Central Statistics Agency, BPS, July 2017).
While in the State Budget (APBN), the ratio of total debt to gross domestic product (GDP) is projected to reach 28.1 percent in 2017 compared to 28.3 percent in 2016, while the debt interest payment ratio to GDP reached 1.3 percent in 2016 (Finance Ministry, July 2017).
State debt vs. sociopolitical
When state debt reached Rp 3.70 quadrillion in June 2017, the government was described as a debt-maker that endangered the economy. If we examine this matter further, government debt incurred from the issuance of Government Securities (SUNs) accounts for 80.4 percent (Rp 2.97 quadrillion) of total debt while that incurred from loans account for only 19.6 percent or Rp 727.02 trillion , which consists of foreign loans (19.5 percent) and domestic borrowing (0.1 percent).
In terms of debt management, the projected debt percentage of 28.1 percent of GDP can be categorized as safe or under control, and still far from the ceiling of 60 percent of GDP (according to Law No. 17/ 2003 on state finances). Likewise, a maximum budget deficit of 3 percent of GDP is allowed.
Thus, the government still has room to maneuver the fiscal expansion in a controlled manner. Moreover, 80.2 percent of the debt is in the form of government securities. This brings an advantage in terms of debt management, since the government can reprofile the SUNs that will mature in order to maintain cash flow and state financial liquidity. From this explanation, it can be said that the government is on track in managing state debt. Public opinion that the large amount of government debt puts the country at risk of bankruptcy is exaggerated.
So why has government debt become a social and political issue? This may be because the people are worried that it has reached quadrillions of rupiah. The large amount of debt is often compared with the degree of income inequality due to fiscal redistribution, where the pattern depends on the budgetary system adopted.
Who benefits from redistribution? What is the impact of redistribution on public and private spending? Is it true that marginalize people benefit from government programs against at them? This is a phenomenon of "icebergs", where control over capital can unexpectedly bring social instability in the long run, economic uncertainty, which in turn can trigger a new economic crisis. This is the main reason why the group that directly controls wealth can bring more inequality, and in the long run can bring sociopolitical instability.
The results of research by Alenia and Perotti (1996) suggest that sociopolitical instability increases income inequality and reduces investment. This can be seen in 71 countries taken as samples. They tested the hypothesis using investment and sociopolitical instability indices as endogenous variables in the 1960-1985 period. The research shows that it can have an impact on redistribution policy, which is fiscal redistribution through increased tax burden on the owners of capital and investors, and reducing the tendency to invest.
Other policies may reduce social tensions, which will make the political climate more conducive to productive activities and the accumulation of capital. From the channel of fiscal redistribution, economic growth can be increased. In his book Asset Redistribution, Siregar (2016) wrote about various poverty reduction programs implemented by the government that had been unable to solve the problem.
Redistribution of assets
The redistribution of economic assets has re-emerged as a central issue, especially in response to global economic imbalances and economic imbalances of each country. As OxFam (2015) states, global wealth is controlled by 1 percent of the world\'s population, which is quite worrying.
On the other hand, in many parts of the world, many marginalized people may not be able to live a decent life because of asset redistribution policies that do not support the poor or the people in general.
Iryanti (2014) of the National Development Planning Ministry/Bappenas said every country had different ways to overcome problems, depending on the size of the gap, and their difficulty levels. She further explained that the experience of some countries showed that countries with large GDP, high per capita income and relatively even distribution of income have relatively low Gini coefficients.
The Word Development report submitted by Rodriguez (2000) titled “Inequality, Economic Growth and Economic Performance” showed that inequality had an effect on economic growth and economic performance. This has been further confirmed by Harford in The Undercover Economist (2006). Harford says economic thinkers are of the opinion that economic wealth comes from a combination of man-made resources, such as roads, factories, machinery and communication systems; human capital, such as hard work and education; and technological resources, such as technical knowhow or simple advanced technology.
Harford added that as poor countries increased their economic growth, investment in fiscal resources, through improved human capital abilities and technology resources through education and knowledge transfer programs, had become a necessity.
Harford also indicated that education, manufacturing ability, infrastructure and technical knowhow, which are abundant in rich countries, are weaknesses in developing countries, including Indonesia.
What the government does in the redistribution of assets through land distribution is one way of minimizing the gap. However, it should be in the form of the transfer of idle land ownership along with the transfer of government tax burden in the form of property tax (PBB). There is also discourse on imposing tax on idle land, which would have repercussions on economic stability. The relevant thing now is how to empower the people and make their assets more productive. After the assets become productive, the government can then start imposing taxes, not the other way around.
Is there a solution?
Although debt management is safe and under control, many people do not realize that the debt issue can be used by certain groups to interfere with local wisdom that could lead to disorientation in development.
Various solutions may be debatable. Nevertheless, the country\'s main problem is limited capital (hard and soft). Limited capital brings consequences to the government\'s ability to build a solid economy. In terms of hard capital, can wealth be translated into assets in Indonesia, which is often called a rich country? Having a treasure does not mean having assets. Say, for example, that a woman has one kilogram of gold. Her ownership of the gold would be meaningless if it is not registered and legalized as an asset even though it could be traded. If the asset was registered and legalized, it could automatically be included as an asset, which has value.
If all the gold assets owned by Indonesians were registered and legalized, thousands of trillion of rupiah could be added to the balance sheet of banks. To make this happen, the government or the private sector could create a sort of clearinghouse that registers and legalizes gold assets.
The clearing house could function not only to register and legalize assets, but also act as a modern treasury in the form “billion system and bullion system” as part of a national financial structure that could go global. Hopefully!
BATARA M SIMATUPANG
Lector at Postgraduate MM, STIE Indonesia Banking School