Aceh

Gave a small talk in Aceh yesterday, regarding the "reconstruction and rehabilitation". My remarks are as follows:

• It is the right momentum to redevelop Aceh. Almost all needed sources are there. The exception, however, should be taken more seriously. It includes: accountable aid management, soft infrastructure, property rights system, and the balance between regulation and rooms for the locals to decide what's good and what's bad for them.
• That said, I tried to encourage the community not to rely completely on Jakarta. ("Acehneses knows themselves way better than anybody else").
• We're in the search for good property rights system. And that does not have to be dictated by central govt -- some systems might even have been existent already. Basically, the central government (or, local government for that matter) is needed only for their role in advocacy. ("We don't need to kick out big corporations. We need to use them. But in order to level the negotiation field, we might need advocacy -- that can come from the government or NGOs).
  
• Do not get trapped in the "poverty trap" assertion. The naive "Big Push" era in Rosenstein-Rodan's sense is over (as opposed to Murphy-Shleifer-Vishny's "big push" interpretation that look more on the institutional dimension). No matter how much money you get to boost up investment, if soft infrastructure is not ready, it all goes to consumption. (By "soft infratructure" I mean institution: political system and the people running it as well as the legal framework, and of course ability to adopt technology).

The discussion was good. In fact I enjoyed talking with the Aceh people. They're very open-minded. (Frankly, I was sort of expecting typical NGO-like resistance to economic solution -- as it turned out, this was way better).

Note: Just found out that the latest Economists' Voice contains two articles related to city redevelopment -- in this case New Orleans vs Katrina (one by env-economist Bob Hahn and the other by the ever-smart Ed Glaeser). Check them out (subscription required).

Be supportive, exers!

Some days ago I came across this news about ex presidents, ex vice presidents, and some other ex high profiles sat together and called for cancellation of BBM price increase. And they went on pointing out the current administration's weaknesses. As if, they were good at their time. They were not. Some of them were even worse. And look closely. Those presidents increased BBM price, too. Look more closely, there's an ex-con in the gang!

It seems to me, these people just love to act (or over-react for that matter) in front of cameras and appear as the never-wrong people.

The Politics of Rice 3

Many people asked me about my posts on rice. I think I should reiterate my position: I am for removing rice import ban (the way I support removing some export bans). One thing that I am obviously against with is if the import license is given to one single firm. And that firm, as we're not surprised, is Bulog. And as days go by, the politics reveal itself. We've been having rice at price higher than those in other countries. Pro-protectinists also argue that this is what we want: to protect farmers. I say, not completely. In fact, it may end up hurting the entire economy, as studies have shown that our farmers are net-consumers peasants who buy rice at the marketplace. In that regard, I agree with removing the import ban. Rice will flow in, adding to the domestic supply and eventually pressing down the price a little bit - and hence the inflation, for rice is a big weigh in the CPI basket.

But now the problem kicks in. The government thinks they can do this supplying business better than anyone else. So they give import license to none but this Bulog -- widely known for its corrupt behavior back in the New Order. So, what can you expect? Nothing but rent-seeking. And days go by: we now knew that in fact, the imported bulks of rice are priced higher than the domestic price! Note that my support for import is based on total welfare concern (which admittedly consumer-biased). But if we in fact import at higher price -- not lower price, this line of argument breaks down. The only explanation left is the belief that stock is really inadequate. But again isn't this the same story as that in BBM fiasco? Only that, this is sort of the beginning.

Moreover, the import has been set without legal auction. Something is really fishy here. Who's there in Thailand smiling wide now?

Votes

Received the paper ballot for AEA 2006 Officers election. Of course I don't bother sending it back. But I would have voted for Chris Sims as the Vice President. (Tom Sargent is surely the next President).

As for the upcoming Nobel Prize in Economics, my guess is for Bhagwati.

Finally, for this far-from-representative list of "world's top intellectuals", I voted for al-Qaradahawy, Toer, Becker, Bhagwati, and Posner. (Yes, there is a Friedman in the list -- but not THE Friedman).

Sachs the Prophet 2

I guess I'm not the only one puzzled by the new Sachs. (See my post yesterday).

The Politics of Rice 2

I knew it! (No, you need not to click it; just scroll down -- it's only two posts down the way). The government will import rice. And it's not hard at all to guess who gets the sole licence: Bulog (State Logistics Agency). In case you missed it, Bulog general manager had just claimed that Indonesia should not import rice. Cheap trick!

Sachs the Prophet

Enough is enough. Now Jeff Sachs declares himself a "prophet"? I'm having hard time to get it. Oh, maybe because he is indeed one of the best economist-speakers? For that matter he deserves the trophy.

(I have to confess. I have not read that guy's book, End of Poverty -- something like that. I just happened to watch the G8 parties endorsing his idea of spoiling the poor. At the time he came to Jakarta, I had two choices: attending his presentation, or watching a movie. The latter it was).

But not for his misleading populism. I can't elaborate my disagreement with his approach now. (The point is, I just don't think the mechanism will work out well -- as in my skepticism toward Indonesian compensation plan, see below). But of course Bill Easterly says it all.

And somehow this leads us to our own government plan to distribute lumpsum money to the poor families every month as a form of compensation after raising the oil and gas prices. If Sachs were indeed a prophet, he seemed to be a successful prophet in Indonesia.

[Via Mahalanobis].

The Politics of Rice 1

In a national newspaper today, the general director of Bulog -- Indonesian state-owned enterprise responsible for rice stock and distribution -- warns not to remove rice import ban. (By this he actually means: don't let anybody but Bulog to import rice. Yes, the law actually assigns Bulog as the only entity allowed to make import). His argument is typical: to protect farmers' income.

He is wrong.

Most of Indonesian paddy "farmers" are actually working peasants who don't own even slightest peace of paddy land. They are pure labors. But they eat rice. In other words, in general, Indonesian farmers are net consumers. Guess who gets hurt when rice price is artificially higher than market equlibrium price? Consumers.

In fact, the same general director says that Bulog is pessimistic that it can meet domestic demand for rice. They don't have enough stock after end of this year. Here comes the silliest part: he blames the shortage on smuggling out. Somebody should explain to this guy, what causes smuggling in the first place.

Policy Package That Isn't

The President announced yesterday an "economic policy package" to deal with the "likely economic crises". (It is so strange: I can't find any online news covering the package in its entirety!). To me, this package is not a package. It's a sermon -- a bad sermon. There's nothing specific in it. Nothing verifiable. In short, it's nothing. The President shouldn't waste his time and ours waiting for such crap announced.

Had SBY been more responsive, he should have announced instead:
1. When exactly he would eliminate the fuel subsidy, and what is the magnitude (numbers, please!). That is, what are the prices he would set for fuel and other derivatives.
2. When exactly he would fire his underperforming ministers.

About fuel price. I would suggest no more administered prices. Let the market decides. Invite competition from abroad. That will release the burden on the budget. Yes, there will be social resistance. Face it. It will be inflationary, yes -- for shorter run than worried, for smaller degree than imagined. The inflationary spiral will go first to rice price. Yes, but it can be curbed by removing the import restriction.

As for the number two, I tolerate some gestation period, as long as there's a definite date when the decision will be announced. A note however, all this complain about "businessmen should not be in the politics" is ridiculous. Why shouldn't businessmen have the same rights as other citizens? My problem is more on whether or not the businessmen who are now in the administration are the right businessmen. I think they are not. Fire them.

Approaching his one year in the administration, SBY so far has been extremely undecisive. It's time now to do something real. Even though I'm not too pessimistic (as in "we're having crisis"), a strong determination from number one leader is a must to calm the market.