s the world has become more divided, countries have resorted to an unprecedented use of monetary and fiscal tools to protect their economies, Finance Minister Sri Mulyani said on Wednesday, adding that the move had put great pressure on both instruments.
She noted that in recent years, the world had turned away from globalization and mutually beneficial free trade amid rising geopolitical tensions.
The shift had made countries more economically inward-looking, and they had been using fiscal tools to navigate economic shocks resulting from fragmentation, she said.
“Many European countries are turning increasingly inward and adopting extreme right ideologies, viewing foreigners as enemies rather than friends,” Sri Mulyani said during her remarks at the 12th Annual International Forum on Economic Development and Public Policy (AIFED).
“At the end of the day, fiscal [policy], which is the budget, is the reflection of the people’s aspirations, so sentiments toward nationalism and populism will eventually be transmitted into fiscal policy,” she added.
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The United States, for instance, had introduced a series of fiscal incentives to bring a number of manufacturing jobs home amid growing geopolitical tensions. Such policies were present in the Inflation Reduction Act (IRA), which promoted the domestic production of electric vehicles, and the Chip Act for domestic semiconductor production, among others.
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