Why Are Many Countries Bankrupt Because of Debt?

Marselina Djayasinga () and Ukhti Ciptawaty ()
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Marselina Djayasinga: Lampung University, Economics Development
Ukhti Ciptawaty: Lampung University, Economics Development

A chapter in Proceedings of the International Conference of Economics, Business, and Entrepreneur (ICEBE 2022), 2023, pp 444-453 from Springer

Abstract: Abstract To prevent debt-related fraud, Indonesia and a few other nations have adopted the Maastricht Treaty Concept, in which the government sets a maximum limit on government debt of 60 percent of GDP and a maximum limit on a budget deficit of 3 percent. In Indonesia are regulated by ACT Number 17 of 2003. This study employs the New Consensus Macroeconomic (MKB) school to make an optimal decision using fiscal rule and expectation variables as a form of economic thought in a state of general equilibrium. The debt stabilization deficit model represents the budgetary rule. Long-term deficit debt stabilizer has a positive effect on output gaps, prices, exchange rates, current account, and primary budget deficits in Indonesia but has no impact on the level of interest rates. In contrast, on a short-term basis, the debt deficit stabilizer in the model has a positive effect on the output gap, exchange rate, and primary budget deficit but has little impact on the price level, interest rates, and current account. If the debt stabilizing deficit model is implemented in Indonesia, it will positively affect the output gap, price level, and primary budget deficit but harm the current account. The debt stabilization deficit does not affect the interest or exchange rate as a monetary instrument variable. Fiscal policy has little influence on the domestic price level, interest rate, and exchange rate over the short term. Because the Central Bank governs these variables, their long-term and short-term significance are noteworthy. To improve economic performance, economic growth, and fiscal sustainability, the Central Bank must improve its coordination with budgetary authority. In contrast, the fiscal equation adjusts to the new equilibrium the slowest. To prevent fraud in counties, it is necessary to consider expectation variables, such as inflation and expected output, as well as the fact that an increase in the debt-stabilizing deficit results in decline in economic performance. Therefore, ACT Number 17 of 2003 is still relevant and necessary for debt management in Indonesia.

Keywords: Fiscal Rule; Sustainability; Debt Stabilizing Deficit; Equilibrium Model (search for similar items in EconPapers)
Date: 2023
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DOI: 10.2991/978-2-38476-064-0_47

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