For years, Indonesia has treated its annual budget deficit as an acceptable economic reality. As long as the debt-to-GDP ratio stays below 60%, and as long as international investors keep buying our bonds, the narrative remains: everything is under control. But what if this thinking is flawed at the core?
What if the real cost of the deficit isn’t the number itself, but the quiet erosion of sovereignty?
Debt Isn’t Just Borrowing. It’s Surrender.
Every time a state issues bonds to cover a deficit, it is effectively making a trade: capital now, control later. The bond market is not a neutral place. It is a political and economic forcefield shaped by investor sentiment, rating agencies, and external pressure. These forces don’t just evaluate your economy — they influence your policy.
This is where the concept of bond vigilantes emerges. These are not official institutions, but collective market actors who punish governments for fiscal behavior they deem excessive. When a country increases subsidies or public spending without a credible revenue plan, bond vigilantes retaliate by selling off the country’s debt, driving yields up and forcing austerity measures.
Indonesia’s Deficit and the Illusion of Control
Indonesia’s fiscal narrative has long rested on being “prudent.” But prudence measured by debt-to-GDP ratios misses a deeper truth: the cost of dependency.
As of January 2025, Indonesia holds over $548 billion in government debt, with foreign debt comprising nearly $428 billion. At face value, these numbers may appear manageable. But when external borrowing becomes the go-to solution for covering annual deficits, we enter a cycle of debt dependency where the budget becomes increasingly influenced by credit ratings, interest rates, and foreign market behavior.
A sovereign nation should not be constantly calibrating its policy to meet the expectations of bond markets.
Bond Vigilantes and the Undemocratic Influence
Let’s be clear — bond vigilantes are not fictional. They are very real actors with real power (see for your self what was happening on US bond market lately).
They are pension funds, institutional investors, hedge funds, and sovereign funds that collectively control trillions in global capital. When they shift their preferences, it causes immediate ripples in domestic markets. A country like Indonesia, despite being resource-rich and demographically strong, becomes vulnerable to these shifts if its fiscal architecture is built on bond issuance.
And here lies the hidden cost: national economic policy ends up being designed with fear of market reaction, not based on national interest. Subsidy cuts, capital spending freezes, even monetary policy shifts — many of these are no longer purely internal decisions. They are shaped by the fear of triggering a sell-off or losing investor confidence.
Capital Engineering as the Real Answer
The alternative isn’t to abolish all borrowing. The alternative is to stop relying on debt as the first tool in our fiscal toolbox.
Indonesia must shift from bond dependency to capital engineering.
We sit on an estimated Rp 10,401 trillion in tracked SOE assets from just 65 companies. The full figure, when including land banks, state-owned logistics corridors, and extractive assets, could reach upwards of USD 3 trillion.
Imagine extracting just 4% annual yield from these assets. That’s Rp 1,600 trillion per year — enough to cover deficits, fund infrastructure, and reduce reliance on bond markets. But this requires vision. It requires leadership. And it requires a doctrine.
Danantara: The Untapped Capital Engine
Indonesia has already established the vehicle: Danantara. It is a sovereign holding company designed to mobilize capital, restructure SOEs, and become the national capital engine.
But if Danantara limits itself to equity holdings and passive income streams, it will fall short of its potential. It must become an active player in:
- Asset-backed securities
- Strategic lending to domestic and regional players
- Infrastructure financing tied to national returns
- Monetization of land and idle assets
If done right, Danantara doesn’t just close the deficit. It rewrites the rules of economic independence.
Conclusion: The Real Threat is Not Debt. It’s Dormancy.
This chapter continues where The Capital Bunker Crisis left off. Indonesia’s core problem isn’t the lack of capital — it’s our collective failure to activate it. We are a rich nation trapped in poor frameworks. The true enemy is not our deficit — it’s our silent acceptance of a system where dormant capital sits idle, while we beg bondholders for yield.
If we don’t act now, we risk building our future on borrowed approval. But if we engineer our own capital — we restore sovereignty. And we define our own growth.
Remember: Capital is like water. It gives life to people — not when it’s stored, but when it flows. There is no point in stacking millions of gallons — eventually, it stagnates and rots. What we need is movement. Circulation. The constant release of life-giving force that reaches the thirsty and feeds the hungry. The more you let it flow, the more life it saves.
That is the philosophy of capital engineering that i deeply believe.