Without adequate economic stabilizers, there would be consequences in the policies deployed in economic cycles. Inside lags from the delay of government fiscal intervention (long periods of legislation), and outside lags from the delay of government monetary invention -- typically because of the long economic integration. These unprecedented consequences would make it even harder for commodity exporters in bad times. This shows how political infrastructure plays a huge role in this continuous issue.Â
When it rains, it pours
Inevitably, commodity exporters' inability to manage abundance in good times, caused by factors like political and capital market infrastructure, explains why it is difficult to deploy countercyclical fiscal policy even until now. When it rains, it pours. When one negative thing happens, a worse effect follows. When commodity prices fall, governments -- that have fallen into the temptation of spending out of windfalls -- will ultimately suffer as it increases their inability to borrow during bad times. This fiscal procyclical trap amplifies an already volatile business cycle of commodity exporters. Governments should be more aware of the fluctuating economic cycles and increase the quality of political institutions to prevent structural crises. Integrity of decision makers in developing countries ought to be mended if this were to change. As Friedman once said, "Governments never learn; only people learn."
Michael Abimanyu Kaeng | Undergraduate Economics Student at the University of Indonesia | Staff of Economic Studies Division at Kanopi FEB UI
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