Riba and Modern Economy in Indonesia

English

Abstract

This study investigates the impact of usury on the economy including economic growth, investment, and consumption in Indonesia.This study employed "autoregressive vectors" to model the causal relationship between variables in 21-year data analysis from 2000 to 2020. This study relies on data provided by the World Bank. In our research, we look at Indonesia's real interest rate, economic growth, consumer spending, and investment utilization. To examine the causal relationship between real interest rate, economic growth, consumer expenditure, and investment in Indonesia. The interest rate has a negative reciprocal relationship, which means that the interest rate suppresses the real sector which includes economic growth, domestic consumption, investment. This proves that the higher the interest rate, the more burden on the real sector. Of course this has a negative impact on the economy. In today's modern economy in Indonesia, the interest system as one of the economic factors and determinants of monetary policy is common in the Indonesian economy. However, interest or in Islam called usury is something that needs to be avoided or minimized because it burdens the economy, especially in the modern economy in Indonesia.