Jakarta –
Sri Lanka’s economy collapsed and was branded bankrupt. The country of 22 million people failed to pay its foreign debt (ULN) which reached US$ 51 billion or Rp. 754.8 trillion (exchange rate of Rp. 14,800).
Director of the Center of Economic and Law Studies (CELIOS) Bhima Yudhistira said Sri Lanka’s bankruptcy should be a serious warning for other countries, including Indonesia, to pay more attention to debt conditions.
“Sri Lanka’s failure to pay debts should be a lesson for other countries, including Indonesia. Sri Lanka’s debt ratio rose dramatically from 42% in 2019 to 104% in 2021, partly due to the burden of spending during the pandemic, infrastructure debt and failure to cope with rising goods prices or inflation. ,” said Bhima when contacted on Sunday (26/6/2022).
The government is asked to manage foreign debt carefully because poor management can lead to economic disaster like in Sri Lanka. Indonesia’s external debt was recorded at US$ 409.5 billion in April 2022, down from the position in the previous month of US$ 412.1 billion.
“If there is a government that recklessly adds debt and always says the debt ratio is safe, while there is no brake, it is necessary to watch out for the threat of a debt crisis in the next few years,” Bhima reminded.
The crisis in Sri Lanka is considered to be able to trigger the flight of foreign capital from the debt market in Indonesia. Although the trade relationship between Indonesia and Sri Lanka is relatively small, said Bhima, the perception of investors and creditors will be that developing countries/lower middle income countries have a high risk.
“Indonesia and Sri Lanka are both lower-middle income countries. The crisis in Sri Lanka risks triggering capital flight from the debt market in Indonesia,” he explained.
Bhima also warned that the risk of rising interest rates and inflation could make the burden on foreign debt even heavier because bond yields will increase in the next few years. According to data from the Asian Development Bank (ADB), the yield on 10-year SBN has increased by 102.9 basis points since the beginning of the year (ytd) to 7.41 percent.
“Creditors certainly insist that interest rates on debt are higher as compensation for rising inflation. This is a very bad situation for government debt management,” he said.
The crisis in Sri Lanka has left residents in a complete shortage of food commodities, fuel oil (BBM), medicines, and electricity because they are unable to import.
Watch the video ‘Sri Lanka Fails to Pay Foreign Debt of IDR 729 Trillion, Bankrupt!’:
Continue on the next page to find out the trade relations between Indonesia and Sri Lanka and the fate of Indonesian citizens in that country.
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