Amid global uncertainty, heightened geopolitical tensions, and tightening global liquidity, Indonesia recorded a decline in private external debt (ULN). Will this be a positive signal or otherwise?
Citing data from Bank Indonesia (BI), private external debt in May 2025 reached US$ 196.4 billion or contracted 0.9 percent compared to the same period last year (year on year / YoY). Private external debt in May contracted more than in April, which amounted to 0.4 percent YoY.
Executive Director of the BI Communication Department Ramdan Denny Prakoso said that the slowdown came from the external debt of financial institutions which slowed down by 1.2 percent YoY and the external debt of private non-financial institutions which also slowed down by 1.4 percent.
By sector, the largest private external debt came from the Manufacturing Industry Sector; Financial Services and Insurance; Electricity and Gas Procurement; and Mining and Quarrying, with a share of 80.2 percent of total private external debt.
"Private external debt remains dominated by long-term debt with a share of 76.5 percent of total private external debt," Ramdan said in a press release on Monday (14/7/2025).
Segara Institute economist Piter Abdullah Rejalam said that the decline in private external debt could not be separated from the slowing domestic economy.
"If private external debt falls because they are more careful, that's good. But if it drops because our economy is sluggish, investment drops, it becomes an alarm," he said when contacted on Monday (14/7/2025).
He explained that in recent years, the private sector has tended to "wait and see" amid global uncertainty. The prices of commodities such as coal and palm oil, which were once the foundation of our exports, began to weaken.
"The private sector has delayed expansion. Even though external debt is usually for investment. When investment slows down, the demand for external debt also automatically slows down," said economist Piter Abdullah.
Geopolitical conflicts in the South China Sea and the Russia-Ukraine war still cast a shadow over global energy supply chains and prices. Meanwhile, global interest rates remain high, making the cost of debt not cheap either. All these factors have made businesses think twice about increasing foreign loans for expansion.
"The private sector has delayed expansion. Even though external debt is usually for investment. When investment slows down, the demand for external debt also automatically slows down," added Piter.
Piter sees this trend as a reflection of business caution. "Private external debt fell not because they are more efficient or no longer need capital, but because they are holding back expansion," he said.
Even so, the structure of our private external debt is actually quite healthy: 78.9 percent of it is long-term debt. This helps reduce the risk of default in the near future.
However, there is another risk that is equally important: if the downward trend in private external debt continues, it means that there is a possibility that the real sector will no longer be eager to invest. And if private investment declines, the impact is significant: economic growth could slow down, employment could fall, and Indonesia's long-term growth engine could be weakened.
Indonesian Employers Association (Apindo) Economic Policy Analyst Ajib Hamdani said that his party did not want to comment much. Currently, entrepreneurs are still focused on the issue of Donald Trump's tariff war.
The government also brakes external debt
On the other hand, government external debt also slowed down. BI data states, in May 2025 government external debt of US$ 209.6 billion grew by 9.8 percent YoY, lower than the 10.4 percent YoY growth in April 2025.
Ramdan from BI explained that the development of government external debt was influenced by the maturity payment of international Government Securities (SBN), amidst the inflow of foreign capital to domestic SBN, in line with the continued confidence of global investors in Indonesia's economic prospects amid global economic uncertainty.
As one of the financing instruments for the State Budget (APBN), the utilization of external debt continues to be directed at priority programs in supporting the stability and momentum of economic growth while still paying attention to the sustainability of external debt management.
Centre for Strategic and International Studies (CSIS) Economic Researcher Deni Friawan said that the position of external debt is good for stability because it minimizes exchange rate risk. However, if this large portion of government debt is absorbed from domestic funds, there are concerns about the crowding out effect: It becomes increasingly difficult for the private sector to obtain cheap financing because the government has exhausted its space.
He added, although the total external debt is under control, it is necessary to look further at its use.
"The debt may exist, but the question is, is it productive or not? Many government expenditures are large in value, but their priorities and effectiveness are often unclear," said Deni.
Productivity focus
Deni gave an example of large programs worth hundreds of trillions of rupiah, but their implementation is often hampered by bureaucratic capacity and immature policy design.
Both Deni and Piter agree: it is not the debt that must be chased up, but how the real economy in the private sector and the government can move again.
"The solution is not to increase external debt. What we need are concrete policies that make businesses more optimistic: fiscal incentives, deregulation, targeted government spending stimulus, and more harmonious fiscal and monetary coordination," said Piter.
Deni also emphasized the importance of evaluating government programs: "Don't just make a lot of programs, but they must be realistic according to fiscal and bureaucratic capacity."
The slowdown in private external debt, in terms of numbers, may seem like a relief, debt risk is declining. But behind it, there is a story of an economy that is losing impetus.
Herein lies the importance of the government's concrete steps: restoring business confidence, maintaining the investment climate, and ensuring that every rupiah of debt is truly productive.
"The economy will only move if business people are confident and the government has a clear direction. That is our homework going forward," concluded Piter.