Summary of changes

First Reviewer:
1. Improved table information

Second reviewer:
1. Revised and shortened literature review
2. Provided Granger’s causality test model
3. Combined empirical results and discussion section
4. Added recent literature (2019, 2020)
A Longitudinal Study of Economic Performance: The Indonesian Context

Abstract:

This study analyzes the causality of economic performance that consists of debt, exchange rates,
unemployment, economic growth, and inflation in Indonesia. The current study employs a quantitative
approach with secondary data derived from the Asian Development Bank documentation. The
observation period is 37 years started from 1981 to 2017. The data is analyzed through the following
stages: stationary test, lag length test, Granger causality test, cointegration test, and VECM test. Based
on data processing using EViews. The results show that the hypothesis was not tested simultaneously,
and there is a one-way relationship between unemployment to the exchange rate and debt to
unemployment.

Keywords: debt, exchange rate, unemployment, economic growth, inflation

JEL Codes: B22, E01, P24
Paper Type: Research Article

1. INTRODUCTION
A well-maintained economic performance reflects solid economic fundamentals. Therefore, short-term
and long-term economic stability could be achieved. Amid the global crisis, the government of a country
could avoid bankruptcy if they maintain the stability of economic performance and economic
fundamentals. Mankiw (2010) explains that the main economic problem is related to the macroeconomy
components; unstable economic growth, unemployment, inflation, trade balance (deficit-surplus), debt,
and the currency exchange rate. This statement is supported by Samuelson and Nordhaus (2010), who
explain that in the 1930s, the United Kingdom and the United States experienced the Great Depression.
This event affected overall economic performance and disrupted both countries’ economies due to high
unemployment and inflation. In addition to these two problems, economic depression also affects the
deficit balance of payments, unbalanced budgets, excessive national debt, and loss of confidence in the
domestic currency.
The current study measures a country’s economic performance based on several aspects of the
macroeconomic economy: external debt, currency exchange rate, unemployment, economic growth, and
inflation. Excessive debts are found to cause a decline in the Nigerian economy over the 1970-2006
period (Ezeabasili, O. Isu, & Mojekwu, 2011), while in Tanzania, foreign debt acts as a driving force in
the economy (Kasidi & Said, 2013). Low unemployment improves welfare in industrial countries
(Oswald, 1997) and economic growth is an essential indicator of a country’s economic quality
(Hajduová, Andrejovský, & Beslerová, 2014). Inflation is also an indicator of economic performance
and an essential part of a country’s economy because it involves consumers, investors, and the market
(Kfoury Muinhos, Springer de Freitas, & Araujo, 2005; Ossman, 2016). Finally, the exchange rate
determines the economic states of a particular country in developing countries. The high value of a
currency (high exchange rate) will encourage economic growth. Therefore, there is a correlation
between the exchange rate and economic improvement (Rodrik, 2008).
 Based on the historical data, a country’s economic downturn and preventive measures needed for
the macroeconomic conditions are very important to be studied. The macroeconomic conditions in this
study are explained according to the experts’ opinion, the external debt, currency exchange rate,
unemployment, economic growth, and inflation. The current research is focused on Indonesia, which is
currently experiencing economic weakness, to develop a clearer picture of the early warning system of
the economic crisis. Indonesia experienced two economic crises, the Asian financial crisis in 1997/98
and the global economic crisis in 2008/09. Indonesia’s economic growth was negative, and poverty
increased at the first crisis, but it succeeded in maintaining positive growth and poverty reduction during
the second one (Tambunan, 2011). However, despite this resilience, in 2020, the country fell into its first
recession after 22 years (https://www.bbc.com/news/business-54819898). The current economic crisis
calls for a strategic study using historical data sourced from credible international institutions.
The current study will obtain the economic crisis estimates for the Indonesian government to be
considered and more alerted through the movement of economic performance indicators. In addition,
this study will answer the following issue: how is the relationship of debt causality, exchange rate,
unemployment, economic growth, and inflation in Indonesia?

2. LITERATURE REVIEW
As an early warning model, estimation is highly associated with the economic concerns of a
company. Therefore, these emerging techniques are used to predict corporate bankruptcy and other
issues that need to be avoided. The interest to revisit the early warning model for financial distress has
increased following the 2008 financial crisis (Bussiere, 2013) and is followed by a need to develop
econometric models of early warning systems to predict currency crises in the EU countries. Early
warning systems are prepared based on the actual GDP growth rates, current balance sheets, fiscal
balance sheets, and short-term external debt (Bucevska, 2015).
A country’s economic performance reflects an economic performance that is used as a benchmark
of economic success. These results also reflect the citizens’ well-being in terms of economic growth,
unemployment, inflation, and other factors. In the United Arab Emirates (UAE), economic growth
indicators are used to assess the sustainability of economic performance. There are three key indicators
of the economy: unemployment rate, population growth, and inflation. These three key indicators
influence UAE’s economic performance sustainability and determine the three variables’ power in
predicting sustainable development (Ossman, 2016).
Economic performance is assessed through financial and non-financial components (Cohen,
Holder-Webb, Nath, and Wood, 2012). The example of financial components that are often used to
assess economic performance are debts (Naya, 1986; Vis, Woldendorp, and Keman, 2007; Clark and
Kassimatis, 2015; Da Veiga, Ferreira-Lopes and Sequeira, 2016; Edo, Osadolor, and Dading, 2020),
inflation (Smith and van Egteren, 2005; Da Veiga, Ferreira-Lopes and Sequeira, 2016), foreign direct
investment (Dritsakis and Stamatiou, 2017), exports (Dritsakis and Stamatiou, 2017; Edo, Osadolor, and
Dading, 2020), economic growth (Vis, Woldendorp, and Keman, 2007; Da Veiga, Ferreira-Lopes and
Sequeira, 2016; Dritsakis and Stamatiou, 2017, Edo, Osadolor, and Dading, 2020), and exchange rate
misalignment (Sallenave, 2010). Additionally, Edward’s (2003) research that examined cross-country
data found a different effect of capital mobility on economic performance in emerging countries and
advanced countries. Studies have also examined the non-financial factors that affect economic
performance, such as broadband penetration (Pradhan, Arvin, Bahmani and Bennett, 2016),
unemployment (Al-Habees and Rumman, 2012; Akinyemi, Oyebisi and Odot-Itoro, 2018; Dritsakis and
Stamatiou, 2017), entrepreneurship (Akinyemi, Oyebisi and Odot-Itoro, 2018), and even employment
rate (Vis, Woldendorp, and Keman, 2007). However, Freudenberg (2003) argued that a composite
indicator of country performance is needed to compare a country’s economic performance.
As Sukirno (2010) and Sloman and Norris (2005) stated, the major macroeconomic problems
faced by a country are related to economic growth, economic instability, unemployment issues,
inflationary issues, trading, and payment balance sheet issues. The balance of payments and problems
with foreign debt repayment is a serious concern for developing countries. Junankar (2013) explains that
economic performance is based on GDP, unemployment, inflation, the balance of payments, and debt. In
comparison, the Bank of Greece (2001) examines economic performance based on GDP growth,
productivity growth, fixed investment growth, inflation rate, rising labor costs, unemployment rate,
government deficit, and balance of payments. Based on the ideas of Ossman, Sukirno, Sloman, and
Norris, and the Bank of Greece, the indicators of economic performance in this study are focused on
debt, exchange rate, unemployment, economic growth, and inflation.
Empirical studies on economic crisis estimation measured economic performance using inflation,
exchange rate, and government debt. Using the Granger causality test, the study concludes that the
increase in the value of Brazilian debt is the real exchange rate. Brazilian actual exchange rates are
appreciated in the United States dollar due to governments lending to institutions and donor countries
(Kfoury Muinhos et al., 2005). A study in Nigeria from 1980-2015 tested the impact of increasing public
debt on unemployment. The result shows a long-term relationship between the dependent (unemployed)
and the independent (debt) variables. According to the autoregressive distributed lag (ARDL) test, a 1%
increase in the average public debt would drive a 1.6% increase in the unemployment rate. The results of
the ARDL test also revealed that a 1% increase in average GDP growth would cause a 0.12% decline in
the unemployment rate (Ogonna, Idenyi, Ifeyinwa, & Gabriel, 2016)
In Nigeria between 1980 and 2015, external debt and domestic debt negatively impacted economic
growth. However, based on the econometric data analysis with the Vector Error Correction Model
(VECM) approach (Favour, Idenyi, Oge, & Charity, 2017), the study found no two-way relationship
between external and domestic debt to economic growth during that period. Holtfrerich et al. (2016)
argue that high government debt can cause big problems for society. This government debt can improve
well-being, but at some points, debt can reduce well-being. This argument is supported by Pilbeam and
Pratiwi (2021) who find that the increase in government debts have negative impact on economic
growth at short term and long term. Marobhe (2019), however, find that external debts have positively
affected Tanzania economic growth.
A study in Greece after the financial crisis shows a negative effect of government debt on
economic growth in the long run, especially after 2000, where increasing government debt will reduce
economic growth. The policymakers’ challenges in Greece are to stop rising government debt by
maintaining a sustainable growth path (Pegkas, 2018). A study in Tunisia aims to test the key
determinants of private sector debt using the VECM approach from 1986 through 2015. The empirical
result shows that lowering the inflation will drive down the value of debt (“Macroeconomic
determinants of public debt growth: A case study for Tunisia,” 2017).
A study on the contribution of government spending to economic growth in South Africa using
annual data from 1980 - 2014 shows a VECM result indicating a positive and significant relationship
between the exchange rate and economic growth (Oladele, Mah, & Mongale, 2017). Real exchange rate
also has been found to positively affect economic growth (Grace, Femi, & Oluwayemisi, 2019). While
Musa, Danlami, and Elijah (2019) find that devaluation and revaluation of exchange rate have different
effect on inflation. A study conducted by Sulistiana et al. (2017), using the Vector Autoregressive
(VAR) model and VECM, can explain a causal relationship between Indonesia’s exchange rates and
inflation. A study conducted in Nigeria from 1980 through 2015 shows that a 1% increase in the
inflation rate would lead to a 0.2% decrease in the unemployment rate (Ogonna et al., 2016). Economic
growth affects unemployment, in which a 1% increase in GDP will reduce the unemployment rate by
0.08% (Soylu, Çakmak, & Okur, 2018). The high inflation level hurts economic growth (Švigir &
Miloš, 2017).
Based on the above theoretical and empirical grounds, the hypotheses of the current study are:
first, there is a causal relationship between inflation and unemployment; second, there is a causal
relationship between economic growth and unemployment; third, there is a causal relationship between
exchange rates and unemployment; fourth, there is a causal relationship between debt and
unemployment; fifth, there is a causal relationship between economic growth and inflation; sixth, there
is a causal relationship between exchange rate and inflation; seventh, there is a causal relationship
between debt and inflation; eighth, there is a causal relationship between exchange rate and economic
growth; ninth, there is a causal relationship between debt and economic growth, and tenth, there is a
causal relationship between debt and exchange rate.

3. METHOD
The research plan is the steps in research to test the proposed hypothesis. Research design is one
of the keys to the success of a study, and it should be implemented to answer the research questions.
Jogiyanto (2004) states that the research design is also intended as a research plan, research structure, or
research process to make research more meaningful, accountable, and conclusive. This study is
associative-causal research because it has exogenous and endogenous variables tested using the causality
test.
The population of this study is the result of the observations on the variables used to measure
Indonesia’s economic performance based on the Asian Development Bank publication during the period
1981-2017. The observation period is selected considering Indonesia experienced two major crises in
1998 and 2008 and its subsequent recovery to provide meaningful insight into the study. The primary
data source used in this study is secondary data collected by the parties with no personal relationship
with the current research, namely the Asian Development Bank (ADB). Therefore, the primary data
collection technique of this research is the observations on ADB published documents. The formulated
problems and the hypotheses will be answered and examined through the following steps: stationary test
data by Augmented Dickey-Fuller Test (ADF), the optimal lag test, Granger causality test, cointegration
test, and VECM test.
Granger causal formula in this study is
p p
X 1 (t )=∑ A11 , j X 1 (t− j)+ ∑ A 12, j X 2 (t− j)+ E1 (t )
j=1 j=1

p p
X 2 (t )=∑ A21 , j X 1 (t− j)+∑ A 22 , j X 2( t− j)+ E 2 (t)
j=1 j=1
Notes:
p is maximum number of lagged observations in the model
E is the residuals of each time series
X 1 and X 2 are the predicted values

4. RESULTS AND DISCUSSION

 The changes in the research variables such as debt, exchange rate, unemployment, economic
growth, and inflation are presented in figure 1 to figure 5. In figure 1, Indonesia’s debt value tends to
increase in the year of observation. The increase in the value of the debt was due to the Rupiah
appreciation of the United States dollar and the increasing demand for basic infrastructures such as
railroads, roads, ports, power plants, dams, and non-infrastructure needs such as education and health.
The increase in the demand for facilities to support people’s lives has resulted in the debt graph having a
positive or increasing slope. Indonesia’s total debt in 2017 amounted to 354.3 US dollars. However, that
figure is still in the safe category under Act No. 17 of 2003 on State Finance, Article 12 verse 1. The act
stated that the maximum loan amount is 60% of GDP and could be made by the government, the Central
Bank, the private sector Bank, Nonbank Financial Corporations, and Non-financial Corporations.

Figure 1: Total Debt Figure 2: Exchange Rate

Figure 3: Unemployment Figure 4: economic growth

 Figure 5: Inflation
Notes Figure 1-5, x: year, y: total debt, exchange rate, unemployment rate, economic growth,
inflation rate

The Rupiah value against the US dollar continued to weaken after the 1998 economic crisis
(Figure 2). The weakening of the Rupiah value was due to two factors: (1) Indonesia’s foreign trade
balance sheet, some of which are deficits. Take, for example, Indonesia’s international trade with China
and Singapore. From 2014 to 2017, Indonesia’s foreign trade balance is deficit; (2) Overseas, the United
States economy experienced strengthening marked by a more attractive fiscal and monetary policy,
namely tax cuts and interest rate hikes.
After unemployment peaked in 2005, the government continued to create strategic policies to
reduce unemployment. The strategic policies are implemented in the form of: first, organizing
vocational education from the Secondary Vocational School level to the college level; second,
administer life skills education at the district/city level such as through the Work Training Center; third,
open new jobs; and fourth, transmigration programs. Based on figure 5, the highest unemployment rate
in 2005, based on data published by the ADB, was 11.9 million people.
Figure 4 is a portrait of Indonesia’s economic growth from 1981 to 2017. In 1998 Indonesia had
the lowest economic performance based on the economic growth of -13.13%. Then, there was a
significant increase in economic growth in 2000, and it remained stable in the range of 4% to 6% per
year (figure 4). The inflation in this study is measured using the Consumer Price Index, which represents
a general increase in prices by one percent. The higher the inflation rate, the less favorable it would be
for a country because the people do not have the purchasing power for the products with such price
increases. This condition makes many unsold products which inflict financial loss for sellers and
producers. Therefore, the inflation rate affects economic growth and has a relationship with economic
growth. Figure 5 shows that the highest inflation occurred in 1998 during the economic crisis with
58.47% and decreased to 20.30% in 1999.

4.1. Stationary Test Data

The unit root test was used in the research to guarantee the stationary time series data using the
ADF test. Table 1 summarized the 1st Difference level, the ADF Statistics, and p values level for each
variable. Debt (0.4003), exchange rate (0.4816), unemployment (0.6448), economic growth (0.0000),
and inflation (0.0073) have p values based on 5% level. The 1 st Difference level test for the root unit was
conducted because of the diverse p values result (above and below 5%). The test results at the 1 st
Difference level found that the p-values of all variables are below 0.05 (5%). Thus, the research
variables are stationary at the 1st Difference level.
Table 1: Data Stationary Test on debt, exchange rate, unemployment, economic growth, inflation
 Table 1: Stationary Test Data
Variable Level 1st Difference
Stat ADF P value Stat ADF p value
Debt -1.745736 0.4003 -3.710081 0.0082
Exchange Rate -1.581422 0.4816 -6.230034 0.0000
Unemployment -1.243229 0.6448 -5.450963 0.0001
Economic growth -7.296975 0.0000 -7.296975 0.0000
Inflation -3.752312 0.0073 -6.966953 0.0000
ADF: Augmented Dickey-Fuller; p-value: probability value

4.2. Optimal Lag Test

The results of the optimal lag test in this research consist of the Final Prediction Error (5.87e-
14), Akaike Information Criterion (-18.50619), Schwarz Information Criterion (-13.51042), and
Hannan-Quinn Information Criterion (-16.97894). Since each lag length test has a star at lag number
4, this lag is the optimal lag used as a reference for determining lag later.

Table 2: Lag Length Test

Lag LogL LR FPE AIC SC HQ
0 74.77511 NA 4.71e-09 -4.983936 -4.746042 -4.911210
1 227.7956 240.4607* 5.21e-13 -14.12826 -12.70089 -13.69190
2 246.5356 22.75575 9.84e-13 -13.68111 -11.06428 -12.88112
3 290.1187 37.35694 4.56e-13 -15.00848 -11.20218 -13.84486
4 364.0867 36.98399 5.87e-14* -18.50619* -13.51042* -16.97894*
FPE: Final Prediction Error; AIC: Akaike Information Criterion; SC: Schwarz Information Criterion;
HQ: Hannan-Quinn Information Criterion; * indicates lag order selected by the criterion.

4.3. Granger Causality Test

The answer to the problem statement is based on the Granger Causality test results presented in
Table 3. Based on the hypothesis, Ho: no relationship and Ha: there is a relationship. The criteria used
to determine the relationship between the variables is the Probability score. The Probability score of
<0.05 indicates support for Ha and no support for Ho, and Prob > 0.05 indicates support for Ho and no
support for Ha. The Granger Causality test results indicate that the first hypothesis is not supported,
and no one-way effect was found. Secondly, there is no causal relationship between economic growth
and unemployment. A one-way relationship was not found, which means the second hypothesis is not
supported. The third hypothesis is not supported because no causal relationship between exchange
rates was found. However, a one-way relationship from unemployment to the exchange rate was
detected. Fourth, there is no causal relationship between debt and unemployment, but a one-way
connection from debt to unemployment was observed.
No causal relationship and one-way relationship were observed between economic growth and
inflation. Therefore, the fifth hypothesis is not supported. Sixth, the causal relationship between
exchange rate and inflation is not supported, and there is no indication of a one-way relationship.
Seventh, there is no causal relationship between debt and inflation, and there is insufficient statistical
evidence of a one-way relationship. Eighth, there is no causal relationship between exchange rate and
economic growth, and there is no one-way relationship. Thus, the eight hypotheses are not supported.
Ninth, there is no causal relationship between debt and economic growth, and no one-way relationship
 is supported. Finally, there is no causal relationship between debt causality and exchange rates, and
the analysis result supports no one-way relationship.

Table 3: Granger Causality Test

Null Hypothesis (Ho) Prob. Result Causality Relationship
INFLATION does not Granger Cause 0.38 Accept Ho There is no causality
UNEMPLOYMENT
UNEMPLOYMENT does not Granger 0.21 Accept Ho
Cause INFLATION
GROWTH does not Granger Cause 0.54 Accept Ho There is no causality
UNEMPLOYMENT
UNEMPLOYMENT does not Granger 0.58 Accept Ho
Cause GROWTH
EXCHANGE does not Granger Cause 0.43 Accept Ho
UNEMPLOYMENT
UNEMPLOYMENT does not Granger 0.00 Reject Ho Unemployment
Cause EXCHANGE →exchange rate
DEBT does not Granger Cause 0.03 Reject Ho Debt →
UNEMPLOYMENT Unemployment
UNEMPLOYED does not Granger Cause 0.46 Accept Ho
DEBT
GROWTH does not Granger Cause 0.62 Accept Ho There is no causality
INFLATION
INFLATION does not Granger Cause 0.76 Accept Ho
GROWTH
EXCHANGE does not Granger Cause 0.33 Accept Ho There is no causality
INFLATION
INFLATION does not Granger Cause 0.43 Accept Ho
EXCHANGE
DEBT does not Granger Cause 0.47 Accept Ho There is no causality
INFLATION
INFLATION does not Granger Cause 0.06 Accept Ho
DEBT
EXCHANGE does not Granger Cause 0.31 Accept Ho There is no causality
GROWTH
GROWTH does not Granger Cause 0.66 Accept Ho
EXCHANGE
DEBT does not Granger Cause GROWTH 0.51 Accept Ho There is no causality
GROWTH does not Granger Cause DEBT 0.60 Accept Ho
DEBT does not Granger Cause 0.18 Accept Ho There is no causality
EXCHANGE
EXCHANGE does not Granger Cause 0.21 Accept Ho There is no causality
DEBT
results in bold indicate the rejected H0 or accepted H1

4.4. Cointegration Test

 The cointegration test is useful for detecting the long-term relationship of debt, exchange rates,
unemployment, economic growth, and inflation. Statistically, the results of the integration test are
summarized in table 4. Based on the Trace test, The Trace Statistic (81.89686) is greater than the 0.05
Critical Value (69.81889) and is supported by the value of Prob (0.0040) <0.05. Therefore, there is a
long-term relationship between the research variables. The Maximum Eigenvalue test showed Max-
Eigen Statistic (37.01898) higher than the 0.05 Critical Value (33.87687), supported by Prob (0.0204)
is <0.05. Therefore, the data of this study meet the requirements for testing the relationship of the
research variables using VECM.
Table 4: Cointegration Test
Unrestricted Cointegration Rank Test (Trace)
Hypothesized Eigenvalue Trace Statistic 0.05 Critical Prob.
No. of CE(s) Value
None 0.685523 81.89686 69.81889 0.0040

Unrestricted Cointegration Rank Test (Maximum Eigenvalue)

Hypothesized Eigenvalue Trace Statistic 0.05 Critical Prob.
No. of CE(s) Value
None 0.685523 37.01898 33.87687 0.0204
Source: author’s calculation

4.5. VECM Estimation Test

The VECM test is used to estimate the influence of research variables. The square bracket [ ]
indicates the calculated value of each variable. This score is compared to the value of 1.96 (the
standard used). If the comparison result is lower than 1.96, then the influence between these variables
is significant. The results of the VECM estimation using lag 4 are summarized in Table 5. First,
unemployment has a significant negative impact on inflation, economic growth, a significant positive
effect on the exchange rate and debt. The second factor, inflation, indicated a significant negative
impact on unemployment and exchange rate and a significant positive impact on the debt. Third,
economic growth showed a significant positive impact on unemployment, inflation, and debt and a
significant negative effect on the exchange rate. The fourth factor, the exchange rate, has a significant
negative impact on the debt. Lastly, debt has a significant negative effect on unemployment, inflation,
and economic growth and a significant positive effect on the exchange rate.
Table 5: VECM Estimation
UNEMPLOYED INFLATION GROWTH EXCHANGE DEBT
UNEMPLOYED(-4) (0.26576) (0.49352) (0.32864) (0.11659) (0.13394)
[-1.95296] [-0.92232] [-1.38891] [1.09042] [1.08659]
INFLATION(-4) (0.10020) (0.18608) (0.12391) (0.04396) (0.05050)
[-0.31417] [-1.70404] [-2.07043] [-1.11752] [0.74550]
GROWTH(-4) (0.10043) (0.18650) (0.12419) (0.04406) (0.05061)
[0.84175] [0.65191] [0.08989] [-1.41751 [0.00896]
EXCHANGE(-4) (0.57075) (1.05989) (0.70579) (0.25038) (0.28765)
[ 3.15884] [ 2.33338] [ 2.33338] [-1.03138] [-1.1435]
DEBT(-4) (1.09574) (2.03480) (1.35499) (0.48069) (0.55223)
UNEMPLOYED(-4) [-1.38373] [-0.01800] [-0.91017] [1.87962] [0.52364]
Source: author’s calculation
 Based on the results of data analysis, it is found that there is no relationship between debt,
exchange rate, unemployment, economic growth, and inflation. These results support the research
conducted by Muinhos (2000), Ristuningsih (2016), Ogonna (2016), Favour et al. (2017), Pegkas
(2018), Belguith and Omrane (2017), Oladele et al. (2017), Soylu et al. (2018), and Švigir and Miloš
(2018). Concerning the estimation of the influence of the research variables, this study only showed
whether the effect is relevant or irrelevant to previous research. First, inflation has a significant negative
impact on unemployment, which is in line with Ogonna’s (2016) study. Secondly, inflation has a
significant negative effect on exchange rates. This result contradicts Belguith and Omrane’s (2017) and
(Sulistiana et al., 2017) studies. Thirdly, economic growth has a significant positive impact on
unemployment, which contradicts the findings from Soylu et al. (2018) and Ogonna (2016). The
exchange rate has a significant negative impact on debt, in line with Ristuningsih (2016) results. Debt
has a significant negative effect on unemployment that contradicts Ogonna (2016). Debt also negatively
affects economic growth, which supports the study of Favour et al. (2017). Lastly, this study found a
significant positive impact of debt on the exchange rate that contradicts Muinhos’s (2000) study.

5. CONCLUSIONS
This study aims to estimate the influence of macroeconomic variables that could be used in the
early warning system of an economic crisis. In general, unemployment is influenced by inflation,
economic growth, and debt. Meanwhile, inflation is affected by unemployment, economic growth, and
debt. Economic growth is affected by unemployment and debt. Exchange rates are affected by
unemployment, inflation, economic growth, and debt. Lastly, debt is affected by unemployment,
inflation, economic growth, and exchange rates.
According to the economic analysis and the findings in this study, the economic crisis in Indonesia
is caused by economic problems such as debt, exchange rate, unemployment, economic growth, and
inflation. Therefore, it is recommended for economists to invest in driving economic growth, reducing
unemployment, and avoiding excessive debt. For governments, it is advisable to maintain the value of
the Rupiah through fiscal and monetary policy and avoid excessive debt. For future researchers, it is
recommended to conduct a multi-countries study to obtain more solid research results.

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