Aditya Suharmoko, Jakarta – Overseas debts have continued to increase in recent years, but the government guarantees prudent debt management, using the loans mostly to help spur growth, according to the finance minister.

"Without debts, our economy would be stagnant. The budget deficit is often widened to raise state budget allocations so as key development projects can continue," Finance Minister Sri Mulyani Indrawati said at a press conference Sunday.

It is projected that government debts will reach Rp 1,700 trillion (around US$170 billion) by years end, a significant increase on 1999's Rp 940 trillion, according to Ministry data.

Government debts stood at Rp 1,299 trillion when President Susilo Bambang Yudhoyono started his administration in 2004. Now as Yudhoyono's first term comes to an end and he runs for reelection, opponents are saying rasing debt is a "hobby" for Yudhoyono.

But debts are needed to boost the economy, said Mulyani. Indonesia's economy grew at more than 6 percent in 2007 and 2008.

"Our debts rose during these two years due in part to the [global financial] crisis. The economy would have been hit hard, we did not want that, so we increased our budget deficit, which is financed by loans."

Indonesia's economy grew by 4.4 percent in the first quarter of 2009, making it the third best performing in Asia, after China and India.

The 2009 budget deficit is set at Rp 139.5 trillion, or 2.5 percent of the country's gross domestic product (GDP), which the government believes will be enough to support the economy to grow by 4 to 5 percent.

Moreover, despite the increasing government debt, the debt-to-GDP ratio has continued to decrease to an estimated 32 percent this year, as compared to 57 percent in 2004. Indonesia's debt-to-GDP ratio is less than Malaysia and the Philippines. Japan's debt is currently twice its GDP.

"The main character in debt management is minimum costs, manageable risks and no political ties." Indonesia's prudent debt management has prompted Moody's Investors Service to upgrade Indonesia's rating outlook, at a time when countries received downgrades.

Asked whether the government finances cash transfers to the poor with debts, Mulyani said the government funded all programs from the state budget.

The programs include fiscal stimulus packages, raising prosperity through subsidies, maintaining the education budget at 20 percent of the state budget and increasing the budget for bureaucratic reform.

Indonesia's debt-to-GDP ratio

Source: Finance Ministry