BI Reveals Trump's Policy Influences Foreign Capital Flow To Developing Countries

Illustration (Photo: Doc. ANTARA)

BANDA ACEH - Bank Indonesia (BI) assesses that the economic policies implemented by the new United States (US) government have the potential to increase global uncertainty and affect capital flows to developing countries, including Indonesia.

Director of the BI Department of Economic Policy & Monetary (DKEM) Juli Budi Winantya conveyed that tariff policies, tax policies, and labor policies could cause uncertainty in the global market.

According to him, this will have an impact on several things, including higher inflation and different expectations of the Federal Fund Rate (FFR) decline, so that the reduction process will be slower than originally estimated.

July said that higher inflation was caused by demand factors and price increases which were influenced by tariff policies.

In addition, tax policies also have an impact on fiscal and yield deficits, which lead to more attractive yields in the US, thus increasing uncertainty in the global market.

"Then apart from the FFR, because the tax also had an impact on the fiscal deficit and on the yield, this yield will also be higher, so that the reward for the results in the US will be more attractive and this will result in uncertainty in the global market," he said at the BI Journalists Training, Friday, February 7.

July said the policy of cutting corporate tax rates boosted domestic demand, which ultimately triggered higher inflation despite boosting economic growth.

According to him, the tax incentive also has implications for increasing the US fiscal deficit, thus requiring greater financing.

Where an increasing deficit will lead to an increase in yields (yield) of US bonds, both in the short and long term.

"So this will also affect the increase in the yield of US dollars due to the increase in the deficit," he explained.

July stated that the prospect of a Federal Fund Rate (FFR) decline has changed, and it is estimated that a one-time drop in interest rates will occur in 2025, which will take place in the second half.

According to July, this will have an impact on the capital flow of developing countries.

A slower reduction in FFR than expected and high yields led to a shift in capital flow from developing countries to the United States.