Do Government Debt and Riba Have an Impact on the Economy and the People?

Abstract

This study aims to investigate public debt or government debt, economic growth, and population productivity as measured by the unemployment rate in Indonesia. We focus on analyzing the republic of Indonesia. We use secondary data from the world bank with an annual period from 1990 to 2021 for all variables. We use the vector autoregressive method in estimating variables. We found that government loans are public loans to encourage economic development. However, interest-bearing loans do not always drive the economy directly. This is evidenced by the interest pressure on economic growth and the higher the public loan, the more it suppresses economic growth and pushes up the unemployment rate. So that usury or interest burdens the economy and encourages an increase in unemployment. Debt slows population growth and productivity, which, in turn, does not generate the income needed to pay off or reduce debt burdens. This cycle of financial reliance is passed down from one generation to the next. Both the current generation and the generations after it are responsible for repaying the debts that were incurred in the past. Additionally, international political and economic organizations uphold agreements made by states to incur debt. Government spending in economic development does encourage economic growth but the leverage of government spending in encouraging economic growth in Indonesia is still not enough to compensate for the debt interest that must be paid by the public.