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In an ancient story, a beautiful woman with a male partner wants superpandai. The hope, one day to live comfortably, have descended gracefully as smart as his father and mother. This road was taken because it's so tempting. Instant, fast and efektif.Seperti decision to cover the gap owes the state budget deficit that was allegedly capable of being a fiscal instrument that can create economic multiplier. So can the debt be the solution to build the capital? Would not be the determinant of the effectiveness of the allocation of construction debt itself?

End of March 2009 Indonesia's total debt reached 151 billion U.S. dollars. This debt is equivalent to 33.9 percent of GDP. In terms of volume, the debt is within the safe threshold. But in terms of usage, 66 percent used to finance non-tradable sector, where 59 percent is used by governments, by 5.8 percent and 1.5 percent of the banking sector by the monetary authorities. Only 33.4 percent are used for the tradable sector.

From this we understand why it owed so much controversy. This means that debt policy is not matched by effective allocation of debt are not able to push the tradable sector. Indicators are in line with the ineffectiveness of debt using the weak visible absorption of labor in the manufacturing sector is only 420 thousand workers. Compare with absorption beyond the social sectors that 1.82 million workers.

Investment Multiplier

So why is owed? Debt can still be justified when it aims to boost national output by improving the capacity of national production. Thus debt can be likened to take advantage of future profits as current or capital Investment multiplier.

Unfortunately this is precisely the ideal excuse not apply. The new debt is much more absorbed by the government allocated to cover the debt burden of the past which in turn would increase the budget deficit. The circle has been running budget deficits for a long time and still seem to regard government debt is the only way out to get out of the crush of the deficit. Though the crush of the deficit will not be resolved with the allocation of debt owed if it is not effective.

Some say the purchase of debt securities and government bonds by foreign institutions on a large scale often aims to reduce their exchange rate and strengthen the domestic exchange rate. In turn, the strengthening of the rupiah through the effect of external factors that would intimidate the domestic industry. As a result, exports will weaken and fertilize imports. Strengthening of the rupiah should be formed of the better domestic skills and not because of external factors.

Increase in domestic investment should also be balanced by an increase in domestic savings. The phenomenon of home bias should continue to be able to continue to strengthen. Home bias is the tendency of small investors to invest his savings in the country even though it means missing investment opportunities abroad. When the correlation coefficient close to 1 means that home bias state savings would be equivalent to investment.

At this point the debt will be able to be a fiscal stimulus that stimulates an increase in investment financed by domestic savings, businesses and governments. Investment to build the plant, equipment, spare and housing will be able to suppress the external imbalance. From this point reduced the deficit and debt will go down by itself.

In addition, the debt needs to be pursued in order to become prohibitive factor of domestic capital flight abroad. Conditions such as this in itself will create more competitive markets so that investment risk is reduced.

Comparative Equivalent

Regardless of the pros and cons of debt, which must be addressed instead focuses on the effectiveness of its use. Capability that is created by comparing the apparent proportion of Indonesia's debt to the proportion of debt to GDP of developed countries like Japan, which reached 170.4 percent of GDP, Germany (62.6%), United States (60.8%) or Canada (62, 3%) would trap us in the longer an error on the allocation of resources for development expenditures. This error will also create a vicious cycle of budget deficit.

It seems it would be wise if we are comparing the proportion of debt to our GDP by emerging market countries such as India (18.9%), China (11.6%), Brazil (18.7%), Thailand (26.5%), Malaysia (29.4%) or South Africa (15.8%). Even the ratio of interest and principal payments of debt to export earnings (debt service ratio) of these countries is far below us. If Indonesia has a ratio of 10.5 percent, India, China and Malaysia is only 4.8 percent, 2.2 percent and 4.6 percent.

Basic decisions are indebted emerging market countries to increase national production capacity through investment in tradable sectors. Debt, for them, would reinforce macroeconomic stability so that policies do not lead to increased debt risk premium. But the debt remained their place as the final settlement to cover budget needs.

Then what about Indonesia? If the debt difficult to avoid, make sure the allocation does not deviate. Deviations from the original purpose of the allocation of the debt trap us in government instead of more severe failure. Investment multiplier is expected to actually change the direction of a debt trap which upsets the balance of the domestic economy.

We all hope that the debt policy failures caused by improper disalokasi debt, did not happen as the story of beautiful women who choose the super smart, if it eventually gave birth to a child stupid and ugly.

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