Economist Sees Indonesia Has Fallen into China's Debt Trap
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21 September 2023 18:07 WIB
TEMPO.CO, Jakarta - Yusuf Wibisono, an economist and Director of the Indonesia Development and Islamic Studies (IDEAS), assessed that Indonesia has fallen into China's debt trap following the issuance of the Finance Minister’s Regulation No. 89 of 2023 on the provision of government guarantees for the acceleration of the infrastructure and facilities of the Jakarta-Bandung high-speed train (KCJB).
“Through which the government is forced to comply with all the wishes of the Chinese party so that this project is completed and not stalled,” he told Tempo in a WhatsApp chat on Wednesday, September 20, 2023.
The bullet train project, he argued, has strayed far from the plan. Initially, it was expected to benefit Indonesia and operate under the business-to-business scheme, but now it has taken a 180-degree turn.
The project, operated by the Indonesian-Chinese consortium PT Kereta Cepat Indonesia (PT KCIC), began planning in 2015. At the time, it was estimated to cost only US$5.13 billion, with no government guarantees and state financing, no tariff subsidies, and no government obligations for land acquisition.
The joint venture owned 60 percent by four Indonesian state-owned enterprises and 40 percent by a consortium led by China Railway was also obligated to pay for any cost overruns. “In reality, none of these things happened,” Yusuf said.
To keep the project going, the government eventually provided state budget financing to state-owned railway operator PT KAI as the consortium’s leader. Additionally, the government would subsidize tickets to lure passengers.
The project was then claimed to face a US$1.6 billion cost overrun, bringing the total cost to US$6.73 billion. This figure is higher than the Japanese offer of only US$6.2 billion. “With 75 percent of the project financed by Chinese debt with a 40-year loan term and high interest rates of up to 3.4 percent, the cost overruns will certainly be very burdensome,” Yusuf opined.
On this basis, Yusuf concluded that Indonesia has indeed fallen into China’s debt trap. “[Indonesia] has taken on debts with high interest for the loss-making project. So it is certain that it will burden the state budget in the long run.”
MOH. KHORY ALFARIZI
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