The Impact of Global Monetary Policy on the Economies of Developing Countries Global monetary policy plays an important role in determining the direction of the economies of developing countries. In the midst of economic uncertainty, changes in interest rates made by large central banks, such as the US Federal Reserve or the European Central Bank, can trigger significant turmoil in global financial markets. One impact is changes in foreign investment flows. When interest rates in developed countries rise, returns from investment become more attractive, thereby sucking capital from developing countries. This causes volatility and weakening of local currency exchange rates. Countries like Indonesia or Brazil often feel this pressure, which ultimately impacts their economic stability. Furthermore, fluctuations in currency exchange rates due to global monetary policy can cause inflation. When the local currency exchange rate weakens, the price of imported goods increases, which directly increases the burden on people’s living costs. This high inflation can affect purchasing power, reduce domestic consumption, and potentially slow economic growth. Another impact of global monetary policy is an increase in foreign debt. Developing countries often rely on foreign currency loans to finance infrastructure projects. With rising global interest rates, the burden of debt payments increases, which has the potential to disrupt the country’s budget. Countries with high debt ratios, such as Türkiye and Argentina, feel the most severe impact from this kind of policy. Tight monetary policies in developed countries also have an impact on fiscal policies in developing countries. Governments attempt to balance the budget by cutting public spending or increasing taxes, which can slow economic growth. In crisis conditions, this could lead to budget cuts for the health and education sectors, which are vital for human development. In addition, global monetary policy can influence commodity prices. Developing countries that depend on exports of raw materials, such as oil and metals, are particularly vulnerable to price fluctuations caused by monetary policy. Economic slowdown in developed countries often results in a decrease in demand, which results in a decrease in state income. Geopolitical tensions are also often related to global monetary policy. In facing the impact of monetary policy, developing countries can experience political instability, which leads to investment uncertainty. Social demonstrations and protests can increase when people feel the negative impacts of these policies, harming the business and investment climate. Finally, innovation and technology are the keys to mitigating the impact of global monetary policy. Developing countries that are able to adapt and innovate, such as through increasing digitalization and strengthening the MSME sector, can strengthen economic competitiveness and resilience. An inclusive and adaptive policy approach and collaboration between the government and the private sector are essential to mitigate the negative impacts of global monetary policy. By understanding and analyzing the impact of global monetary policy, developing countries can take proactive steps in formulating appropriate strategies. This will not only maintain economic stability but also promote sustainable growth for society as a whole.
