Till Debt Do Us Apart

Posted on December 23rd, 2009 at 1:47 pm by Akhyari


I was in Bali for a international summit when i met some people from Latin America counties discussing about their national debts and their ability/unability to pay back. I joined the discussion to see a fellow Indonesian who talked with full spirit about Indonesia’s huge debt. I confronted her argument by saying that Indonesia is better off in term of ability to pay back the debt.

How to measure one’s ability to pay back the national debt? Easy… use the Debt-to-GDP ratio. It will help you to measure of your country’s debt in relation to your gross domestic product (GDP). By comparing what a country owes and what it produces, the debt-to-GDP ratio indicates the country’s ability to pay back its debt. The ratio is a coverage ratio on a national level. This measure gives an idea of the ability of a country to make future payments on its debt. If a country were unable to pay its debt, it would default, which could cause a panic in the domestic and international markets. The higher the debt-to-GDP ratio, the less likely the country will pay its debt back, and the higher its risk of default.

Is Indonesia in a default threat? I hardly think so. Let’s see the comparison.

The US, world’s richest country, has a staggering debt of $13.454 trillion or nearly 95% of its GDP. US is the 20th biggest debtor in the world. Who stands on rank #1?

Australia, at #18 with 111% external debt to its GDP. Italy at #17 with 126% external debt to its GDP, Germany at #14 with 178%, Hongkong at #10 with 206% (oh my goodness).

Belgium at #5 with 320% (gosh), United Kingdom at #3 with 408% ( !!!!!), Ireland at #1 with……1,267%. Ireland’s GDP is only $189 billion, while its external debt is… $2.4 trillion!

Where is Indonesia? Indonesia’s external debt per Dec 2008 was (only) 30.7% against GDP, lower than Malaysia with 33%, slightly higher than Thailand of 29.7%, far lower than The Philippines of 45.4%.

I am sure now you understand why I confronted that lady in Bali.

Figures taken from CNBC.com

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