This is the third installment of a 4-part series examining the 5 Tiger Cub Economies, and the fundamental factors used to determine the best country ETF to invest in. Part 1 covered demographics and the middle income trap. Part 2 explored the effect of lower energy prices, financial market disruptions, ongoing slowdown in China and US protectionism. Part 3 will examine fiscal and monetary policy, plus manufacturing PMI.
Fiscal policy is largely based on the theories of Keynes, who believed governments could influence the economy by adjusting tax rates and government spending. The charts provided below show that Indonesia has the lowest government debt by far, a result of the most conservative fiscal policy among the Tiger Cub economies.
However, this is a double-edged sword. The fiscal deficit is approaching 3% of GDP, the legal limit in the country. Government spending on infrastructure and social security has underpinned the economy in the face of low commodity prices. The deficit's proximity to the 3% limit has resulted in cuts to planned government expenditures. The fiscal deficit will also put pressure on the government to increase tax revenues. The combination of reduced government spending and increased taxation will ultimately stress Indonesia's economy, which is just starting to improve with stable commodity prices. Given this situation, I cannot reward a fiscal policy that I would normally give high marks for.