But the gains came in a trickle in September, the last month of the first stage, where the redemption rate is the lowest. The target of Rp 165 trillion (US$12.54 billion) in redemption from the tax amnesty is nowhere in sight.

As the significant shortfall in tax revenue jeopardizes the sustainability of the 2016 state budget, the government is faced with two unpleasant options: to further cut public spending or seek more debt. Austere budgeting is logical in the face of revenue shortages, but austerity policies in most cases hurt rather than help the economy.

As spending is cut, demand falls, consumption shrinks and the economy slows down. Austerity policies would not hurt much if there were compensating factors elsewhere.

But unfortunately, Indonesian exports continue to weaken and private investors are not rushing to invest in Indonesia, despite 13 economic packages issued by the government to stimulate investment.

Against this backdrop, too severe a budget cut could push the economy into a deeper slump. And what is important is that too austere a budget could have a disproportional impact on the poor, as public services suffer both in quantity and quality.

That austerity measures can undermine economic activity has become evident in recent years.

Budget austerity policies prescribed by the International Monetary Fund (IMF) for countries in economic trouble have been controversial and prompted lots of criticism.

There is a limit to austerity policies, as empirical evidence shows. The measures advocated by the IMF to Indonesia during the Asian financial crisis of 1998 and to Greece and Spain following the 2009 crisis, have been counterproductive.

Instead of putting the economy back on its feet, the austerity policies have deepened crises in those countries, inflicted more suffering on the people and triggered political instability.

The rationale behind IMF austerity policies is the necessity to restore business confidence. IMF officials argue that if a country is willing to suffer pain from exercising budget discipline, business confidence will return and investors will start investing. But these results, as we all know, have proven elusive.

Because cutting government spending bears the risk of producing too tight a budget, which could hurt the economy, it is important to balance this policy with a more flexible stance on borrowing.

Increasing the budget deficit to the legal maximum of 3 percent of the gross domestic product (GDP) would provide more fiscal space and could help maintain the current pace of economic growth, although this means the government has to raise additional debts to the tune of Rp 82 trillion.

This amount is far short of the tax amnesty redemption target, but it would ease the pain caused by spending cuts.

It is understandable that the government is reluctant to pursue this course, as it would be considered violating the legacy of prudent fiscal management practiced by the government over the years.

The government is always concerned about a negative reaction from the market if the deficit and debt rise. Market participants could lose confidence in the Indonesian economy, triggering capital outflows and rupiah depreciation.

Volatilities in the financial market would hinder investment in the real sectors. Another impact of higher government debt and budget deficit would be higher bond yields demanded by investors, as holding the bonds is deemed riskier. This would increase government spending on interest cost.

The interest cost of government debt has risen from 1.2 percent of GDP in 2012 to 1.52 percent of GDP in 2015.

Even though inflation and the general interest rate trend are pointing down, it is likely that the market would ask for higher government bond yields due to the weakening budget, so interest payments by the government would exceed the 1.6 percent of GDP assumed in the 2017 budget.

But this additional cost would be covered by higher revenues from maintaining the pace of economic growth.

The government’s debt profile is still within the bound of prudent macroeconomic management.

In terms of its percentage of GDP, Indonesian government debt is still 28 percent, lower than that of India (41), China (66), Malaysia (55), or Thailand (36).

Most of the government debt is denominated in rupiah, limiting its exposure to exchange rate fluctuation.

They were raised in the capital market, held by private investors, 38 percent of whom are foreigners.

The issuance of government bonds has contributed significantly to the development of the capital market in Indonesia.

It has become an additional instrument of investment for institutional investors as well as Indonesian individual savers. Also Indonesia’s budget deficit at 2.5 percent of GDP is lower than that of China (2.7), India (3.9) and Malaysia (3.2).

To mitigate the negative impact of seeking additional debt, it is imperative that the additional debt should be used to build projects that can produce high economic returns by fostering economic activity and growth.

If the use of additional debt can produce more economic growth, it would also create a potential for higher tax revenues. And these additional revenues could be partly used to service debt.

So, provided the debt is used properly and wisely, it could pay for itself. Although seeking more debt may run up against political resistance and criticism from various quarters, at a time when the budget is facing difficulties, some relaxation of the government stance on debt is required.

The important thing for the government, before seeking more borrowing, is to consider the cost and benefit of taking up more debt, and generating public support for this decision.

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The writer is a commissioner in a publicly listed oil and gas service company. The views expressed are his own.

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