Jakarta – Indonesia's huge public debt is likely to derail its economic recovery, the IMF's Jakarta representative John Dodsworth said Tuesday, urging the new cabinet to make the debt burden its main focus.

Addressing a seminar in the Indonesian capital, Dodsworth predicted the state budget would be burdened by the massive debt over the coming years. He referred specifically to the need for the government to allocate a substantial amount of funds for interest payments on bank recapitalisaton bonds.

Dodsworth said the cabinet was expected to present a new "complex" budget to parliament in October, giving the new team very little time. "For the last couple of years, we've said let's have stimulants [through budget expenditure], let's try to move the economy back to recovery," he said. "But that is going to work only for a certain length of time when you have such a large public debt," Dodsworth added.

He said that in the next few years, "the government would have to consolidate its structured budget deficit." "There will have to be, I think, some medium term planning on how you tackle it."

However he said such moves would be "very difficult political decisions." In case of subsidies, for instance, "how do you protect the poor people, while you're reducing the subsidy?" "This is something that needs to be planned in the medium term," he said.

Dodsworth said the also needed to downsize the civil service while increasing government employees' wages. "But there are so many people in the civil service. It is very difficult to do that particularly if you are on a consolidation track, he said.

Civil service reform he said was "a very complex issue, one which will be politically difficult, but actually has to be grasped," Dodsworth said.

He nominated raising taxes as one way of consolidating the structured budget deficit. "It is probably true that Indonesia has a very low tax to GDP ratio. But the problem is not the design of the tax system, but the administration problem,", he said, conceding that tax rises were also politically difficult.

Dodsworth also pointed to the rationalisation of capital expenditure as another way of addressing budget expenditure. "Capital spending has been cut largely because there have been very wasteful expenditures in the past. So people are quite comfortable with cutting capital expenditure," he said.

"But there are clearly limits to this. Infrastructure needs maintenance and resources are required to do this. This is another decision this government needs to consider," he said.

Indonesia's total external debt, including government and private sector debt, is estimated at 144 billion dollars, an amount roughly equal to the country's annual GDP of 160 billion dollars, according to Indonesia economic expert Jeffrey Winters.