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Vol 41 No 3 (2026): September

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Submitted
Sep 13, 2024
Accepted
May 26, 2026
Published
Sep 28, 2026
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Debt Trap as Hidden Problem: An Empirical Evidence of Indonesia’s Government External Debt

https://doi.org/10.22146/jieb.v41i3.16390
Ikbal Fatkhurrohman
BPS-Statistics Indonesia Pelalawan Regency, Pelalawan, Riau, Indonesia
Nasrudin Nasrudin
Department of Statistics, Politeknik Statistika STIS, Jakarta, Indonesia
https://orcid.org/0000-0002-9538-1277

Journal of Indonesian Economy and Business, Vol 41 No 3 (2026): September

Abstract

Introduction/Main Objectives: This study aims to identify and analyze the debt trap in Indonesia's government’s external debt. Background Problems: The Indonesian government's external debt management is potentially unsustainable due to the debt trap problem, resulting in a declining ability to pay amidst increased debt accumulation. Novelty: Unlike studies that rely on basic indicators, this research adopts a more comprehensive method to identify the debt trap. Research Methods: We employ a simultaneous equation with a two-stage least square (2SLS) estimation method to detect bidirectional relationship between debt and debt service ratio on annual data from 1990 to 2022. Finding/Results: The findings reveal the presence of a debt trap in Indonesia, driven by easy access to borrowing, the need to protect foreign exchange reserves, and the legacy of crisis-era debt caused by IMF-imposed structural adjustments. Conclusion: We recommend that the government reducing dependency on new borrowing and strengthening repayment capacity by enhancing exports, reducing import reliance, channeling FDI into strategic sectors, and maintaining depreciating exchange rate stability to mitigate the risk of a debt trap.

Keywords

debt trap government external debt simultaneous equation model two-stage least square (2SLS) debt overhang debt cycle theory
Fatkhurrohman, I., & Nasrudin, N. (2026). Debt Trap as Hidden Problem: An Empirical Evidence of Indonesia’s Government External Debt. Journal of Indonesian Economy and Business, 41(3), 408 –. https://doi.org/10.22146/jieb.v41i3.16390
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Author Biographies

Ikbal Fatkhurrohman, BPS-Statistics Indonesia Pelalawan Regency, Pelalawan, Riau, Indonesia

Ikbal Fatkhurrohman is an employee at BPS-Statistics Indonesia Pelalawan Regency. He has worked on the Data Integration, Processing, and Dissemination Team for two years. He earned his Bachelor's degree in Economic Statistics from Politeknik Statistika STIS, Indonesia. His research interests include Macroeconomics, Public Economics, Econometrics, and Spatial Econometrics.

Nasrudin Nasrudin, Department of Statistics, Politeknik Statistika STIS, Jakarta, Indonesia

Nasrudin is a lecturer and researcher at the Politeknik Statistika STIS, Indonesia where he has been a faculty member since 2015. He earned his Bachelor’s degree in Statistics, Sekolah Tinggi Ilmu Statistik. He did his Master’s degree in Economics Development and Planning at Universitas Padjadjaran. Besides, he completed his Doctoral degree in Agricultural Economics from IPB University. His research interests lie in the areas of economic statistics, econometrics and forecasting, macroeconomics and official statistics.

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