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President Susilo Bambang Yudhoyono said on Monday that the country must reduce its dependence on foreign loans to ease burdens on the state budget, while urging his recently criticized ministers to manage their budgets wisely.

“Let us become less dependent on foreign financing sources,” said Yudhoyono, opening a limited cabinet meeting at the Presidential Palace.

Constantly going into debt to finance the budget put the government at risk of a downward spiral in which it is forced to increase borrowing in order to finance more debt, he said.

“When we do this we end up paying back more money overseas and this means we have less to spend on our budget,” he added.

Indonesia has been tapping domestic and international debt markets to finance a budget deficit estimated to widen to 2.1 percent, or about Rp 133 trillion ($14.76 billion), of GDP this year, up from 1.6 percent in 2009.

Because the nation has not yet achieved an investment-grade debt rating, it must pay considerably higher borrowing costs than developed countries.

Yudhoyono added that projects requiring foreign funding should ideally be financed with international development aid or debt write-offs, which would allow Indonesia to exchange foreign debt for financing for specific development projects.

The government is currently exploring debt-swap agreements with Australia and several European nations. In June, it signed a $29.91 million debt conversion with the United States to protect forests in Sumatra.

To manage national debt, Yudhoyono reminded ministers to carefully administer and disburse their portions of the state budget.

“State budgets should not just be doled out, although absorbing expenditure is important. Budgets also need to have direction and should be targeted, using principles of prudent fiscal management,” the president said.

Finance Minister Agus Martowardojo said ministries had absorbed 35 percent of the 2010 state budget as of June 30, a higher rate than in the first quarter.

Agus also denied that the president’s remarks were tied to a recent evaluation by the Presidential Working Unit for Development Supervision and Control (UKP4), which gave a quarter of the cabinet failing grades for their performance.

Ministries often miss spending targets due to poor management and slow distribution of budget funds, with the unspent money carried over to the next year.

The Finance Ministry has been encouraging ministries to spend more proactively to stimulate the economy and help meet a government spending growth target of 5.8 percent this year.

Asked about the current ratio of government debt to income, Coordinating Minister for the Economy Hatta Rajasa said he did not know the exact figure.

However, the ratio of total external debt to GDP — a combination of both public and private debt — was about 27 percent, he said.

“Our target in the government’s medium-term plan until 2014 is to reduce external debt to 24 percent,” Hatta said.