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Imagine an economy where
the only source of income is external (foreign) debt.
Suppose also that in the beginning of a period, a (an)
country (economy) is endowed with a certain amount of
income. This simplification is common in any science and
problem, so nothing wrong with it. Now let's pick two
dates, say the years of 1970 and 1999, in which we can
study the performances of certain variables such as
income per capita and external debts. Through out this
short article, we will perform simple math, so please
pay attention to the numbers.
We start from the first date. Thirty years ago, in 1970,
our national income per capita was around $300. At that
time total population was around 120 millions. Our
external debts were not more than $10 billions. Thirty
years later, in 1999, our national income was around
$911, total population was 210 millions and external
debts (or foreign debts) were around $151 billions
(figures are taken from the World Bank's website). The
external debts comprise both private and public debts.
Let us do a simple
math. External debt per capita (total debt divided by
total population) in 1970 was $83. This means on
average, each person in the country owed debt with the
amount of $83. Imagine the amount at that time. One
could use the money to sustain his life for almost 3
months. Before the new millennium, our debt per capita
already escalated to $719. This is an increase of $636
of a debt per capita. Suppose the population growth were
zero so that the total population in 1999 would stay at
120 millions. The debt per capita would be $1,258. In
other words, during the period, each person in the
country accumulated his debt with the amount of $1,175.
During the period, our
income per capita increased by $611. This is less than
an increase in our debt per capita. It simply implies
that we borrowed more than what we could produce. The
deficit was $25. Again, suppose there were no population
growth so that total population would stay at 120
millions. Using the total income in 1999, our per capita
income would be $1,740. Comparing this with the
accumulated debt per capita, we have a positive balance
of $565 between debt and income per capita.
What can we see from
the simple numbers above? Firstly, there have been
claims that the huge size of its population is one of
the sources of the problem for Indonesia. This turns out
to be wrong because even though we assume that the
population growth were zero the income per capita would
only increase by $565. Assuming no population growth,
this means that in 30 years of development Indonesia was
only able to increase its income per capita by $565.
Secondly, we never realize how huge is our external debt
until we express it in terms of per capita ($1,258) and
then compare it with our income per capita ($991). Such
amount of debt would enough to sustain a life of an
average Indonesian for more than one year (remember that
the salary of a fresh university graduated worker is
around $80-90 per month).
Thirdly, one may argue
that we might be better off just borrowing money from
overseas and did no work. His argument points to the
fact that during the period our natural resources have
already exhaustedly exploited and the capital stocks,
such as machines and energy, we accumulated are far from
sufficient compared to the costs we already incurred.
Perhaps it will be
useful to compare our economic performance to the
closest neighbor, Malaysia. After all, without a
comparison, we will never know how good or bad we are.
Thirty years ago, in
1970, Malaysia's income per capita was around $1,357. At
that time total population was nearly 11 millions and
external debts were not more than $2,5 billions. In
1999, the income per capita became $4,305, total
population was 23 millions and external debts increased
to $46 billions.
As we have done above, now let us do a simple math with
the income per capita. During the period, Malaysia's
debt and income per capita increased by $1,773 and
$2,948, respectively. The balance is positive of $1,175.
Again, suppose there were no population growth so that
total population would stay at 11 millions. Using the
total income in 1999, Malaysia's debt and income per
capita income would be $4,182 and $9,001, respectively.
Comparing this with the accumulated debt per capita,
they have a large positive balance of $4,820 between
debt and income per capita.
What can we see from
the simple numbers above? Firstly, in both cases,
whether we let the population grow or not, the
productivity of external debt in Malaysia is higher than
in Indonesia. For example, suppose, as in reality,
population grew. In Indonesia, during the period of
1970-99, income and debt per capita increased by $611
and $636, respectively. The ratio of the increments of
income and debt per capita (which can be say as the
productivity of debt) is 0.96. For Malaysia, this ratio
is 1.66. By similar token, if we assume no population
growth, the ratio would be 1.22 and 1.93 for Indonesia
and Malaysia, respectively. In both cases, the
productivity of debts in Malaysia is higher 0.70. Again
this shows us that it is not the problem of population
size, rather how good we manage and utilize the external
debts.
The major problem with
our nation is the management of resources. I don't know
when we will have a good government that can manage our
resources, either external debts or natural resources,
well. But one thing I surely know is we will never have
such government unless we study and understand the
failures of the past government. Similarly, we will
never have a good and competitive nation unless the
current young generation learns from the older
generation's mistakes and weaknesses.
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