German and US Economies in Crisis, Indonesia under Control
The economies of the United States and Germany are on the brink of crisis. The impact of the crisis on Indonesia is believed to be still controlled.
By
LARASWATI ARIADNE ANWAR, AGNES THEDOORA
·4 minutes read
SPENCER PLATT/GETTY IMAGES/AFP
People walk past the New York Stock Exchange (NYSE) on March 16, 2023 in New York City. Stocks fell again in morning trading as investors continue to show concerns over the stability of global banks following the collapse last week of Silicon Valley Bank.
WASHINGTON, FRIDAY — Two developed countries with strong economies, the United States and Germany, are facing a crisis. In fact, the US is still in a negotiation deadlock over the debt ceiling between the White House as the executive government and the House of Representatives, one branch of the legislature.
Meanwhile, in Germany, both the government and financial experts have predicted there would be no drastic economic downturn. However, there will also be no meaningful growth. In essence, the economy is expected to decline until 2024.
Researcher at the Institute for Development of Economics and Finance (Indef), Abdul Manap Pulungan, said on Friday (26/5/2023) the impact from a potential crisis in the US could affect Indonesia's monetary and financial sector, while a recession in Germany had the potential to add pressure to Indonesia's export performance.
On the monetary side, default on US debt could lead to depreciation in the rupiah exchange rate, which could, in turn, result in an increase in yields on Indonesian bonds. "The risk is higher yields could add to the burden on the state budget," said Abdul.
However, he believes the impact of the crises in the two countries on Indonesia will still be controlled.
Negotiations
Debt ceiling negotiations between the White House and the House of Representatives continued on Friday. White House spokeswoman Karine Jean Pierre said the negotiations were smooth and productive.
The two parties agreed that a decision regarding the debt ceiling must be made no later than June 1.
The issue of the debt ceiling is a serious problem in the US. At this time, the US government continues to borrow large amounts of money to finance various government projects or disburse funds for partnerships with friendly countries.
JSA
President Joe Biden talks with House Speaker Kevin McCarthy, R-Calif., as he departs the Capitol following the annual St. Patrick's Day gathering, in Washington, March 17, 2023.. It's the first concrete step toward negotiations on averting a potential economic catastrophe, but theres a long way to go: Biden and Republicans can even agree on whats up for negotiation.
US House of Representatives’ Speaker Kevin McCarthy, a Republican, said such a practice was unacceptable. When he was sworn in in January, he said the US would no longer sign blank checks. For an example, the US has spent a total of US$54 billion for Ukraine since Russia invaded the country, in February 2022. This expenditure, which was intended to help Ukraine, was considered by the Republicans to be burdensome for the country, especially since the economy had not yet recovered from the COVID-19 pandemic.
In negotiations, the debt ceiling can be raised, but there must be spending restrictions by setting an upper limit.
Biden wanted the spending cap to be in place for just two years. After that the option would be to return to the original regulations with no upper limit or to negotiate a new limit.
However, Republicans in the House of Representatives wanted the spending ceiling to be enforced for six years to improve government spending.
“The issues discussed are getting fewer but deeper. Indeed, this is a very complicated discussion and must be carried out in a comprehensive manner," said a member of the House of Representatives from the Republican Party, Patrick McHenry, to the USA Today newspaper.
In addition to the ceiling on spending, the discussion also touched on the discourse of tightening the requirements for receiving social assistance for the community. The factors discussed included proof of employment, length of service and evidence of termination of employment. This is to ensure various social assistance and community welfare services affected by the COVID-19 pandemic are effective and on target.
That is because in the first year of the pandemic, there were several cases of cash assistance beneficiaries squandering the money received by buying luxury goods.
Germany
According to a report by the German Federal Statistics Office, the country's GDP in the first quarter of 2023 contracted by 0.3 percent compared to last year. As a result, the society has had to tighten its belt.
Household consumption for the first quarter of 2023 decreased by 1.2 percent. Energy prices had skyrocketed, forcing people to reduce spending, said Pantheon Macroeconomics economist Claus Vistesen, as quoted by CNN.
Our economy is slowly recovering from the pandemic, but energy prices have not fallen due to the Russia-Ukraine war.
German Chancellor Olaf Scholz said in a press conference in Berlin he was confident the German economy would grow, because investment and production in the shipping and battery industries had continued to increase. However, economists were not as optimistic as Scholz as German car exports to China, their biggest market, fell 24 percent.
"Our economy is slowly recovering from the pandemic, but energy prices have not fallen due to the Russia-Ukraine war, which will prevent people from indulging in impulse shopping, unless they really need it," said Vistesen. (REUTERS)
This article was translated by Hendarsyah Tarmizi.
