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Indonesia to feel the pinch of worsening US debt crisis
A weaker United States dollar can lead to inflation and higher import costs in Indonesia, as many goods are priced in US dollars.
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United States one-dollar banknotes are seen in front of a displayed stock graph in this illustration taken on Feb. 8, 2021. (Reuters/Dado Ruvic)
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here have been many questions about what the impacts of increased United States debts would be on the Indonesian economy. Before addressing this question, let us briefly go through the US economy, its national debt, and how it has accumulated.
As the US is documented as the world's largest economy, with a nominal gross domestic product (GDP) of US$25.46 trillion in 2022, its economic policies have significant impacts on global markets. Any decisions that affect its monetary and fiscal policies can have ripple effects on economies worldwide.
Following the US, China, Japan and Germany hold the positions of the second, third and fourth largest economies, with GDPs of $18.1 trillion, $4.2 trillion and $4.01 trillion, respectively.
The US’ increasing national debt has been a concern for many countries around the world, including Indonesia. The US “national debt” is the total of the US government’s debt to its creditors, which can be private companies or other countries. The US debt is accumulated over time through borrowing, with the US government issuing government bonds to investors to fund its national spending.
There are at least three major causes of US accumulated debts: Government spending, tax policies and economic conditions.
One significant factor is the government's spending on continued government programs such as Defense, Social Security and Medicare, as well as the cost of interest payments on existing debt. In 2022, the US spent about $1 trillion on defense, including military equipment, or half of the world’s total spending on it (or about the same size as the Indonesian economy).
Second, US tax policies such as tax cuts which are usually adopted to lure investment, can also contribute to higher levels of debt as they decrease government revenue while government spending remains the same. Last, in 2023, to mitigate the long-term impacts of COVID-19, the US government has committed $4.59 trillion to engage in deficit spending to stimulate the economy, which can further add to the debt.
