Analysis of the Association of Foreign Debt with Macro Economic Variables and View of Islamic Economy: Study of the Indonesian State Budget Period 1968-2018 Using Vector Autoregression (VAR) Method and Tawhidi String Relation (TSR)

Author(s)

Masfar Gazali , Yuswar Zainul Basri , R. Bambang Budhijana ,

Download Full PDF Pages: 168-201 | Views: 772 | Downloads: 238 | DOI: 10.5281/zenodo.3510032

Volume 8 - July 2019 (07)

Abstract

This study aims to look at the state budget deficit and the effect of foreign debt on macroeconomic variables. These variables are economic growth, domestic savings, investment, exports, labor force growth and Indonesia's GDP. Zakat is used for the possibility of being used as a funding source to cover existing budget deficits. This study also looks at the interrelationship (causality) of the influence of foreign debt with macroeconomic variables as above. The methods used are Vector Autoregressive (VAR) and Tawhidi String Relations (TSR). These methods are used simultaneously, namely applying the VAR method to TSR. Also proposed is the variable zakat as the financing for the budget deficit that occurs. That the budget deficit was caused by an imbalance between the state's sources of income and government expenditure. To find that this government deficit is refinanced by adding new debt, both foreign debt and domestic debt. Resulting,  that the existing debt becomes burdens the State in the installment process, both principal and interest. Another finding from this study all variables studied have a causal relationship with each other. Only 8 variables related to one direction are economic growth and debt, FDI with saving. Then exports with debt, debt and labor force, saving and also GDP per capita and debt and labor force also saving. When these findings were applied to the TSR method, the results showed better results and conditions. This study also found that the variable zakat as an Islamic economic variable can and able to cover the budget deficit that occurs in the APBN, as seen from the large potential of existing zakat which is Rp. 217 trillion per year. But if this zakat is applied to APBN, it must be channeled to a minimum of 4 categories who are eligible as recipients of zakat according to Islamic law. The implication of this finding is that the government pays attention to variables that affect other variables and also the nature of causality. Meanwhile, zakat can be managed more professionally because it has greater potential at least to be used as an alleviation of poverty and poverty as two becomes variables of zakat recipients that can be submitted to APBN revenues

Keywords

deficit, budget, foreign debt, economic growth, saving, investment, GDP per capita, unemployment rate, exports, zakat. VAR and TSR.

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