Tuesday, December 25, 2007

Notes on 2007

On politics

As I gather thus far, there have been only two remarkable blunders by SBY this year: first on fuel prices and second, to a lesser degree, on Yusril Mahendra. SBY has been known to be highly indecisive. But at the few times when he is otherwise decisive, there is one of two things you would expect: he's totally sensible or he screws up. He was plain sensible to cut the unfair fuel subsidy a couple of years ago. Yet he recently screwed up this year by promising not to do that again whatsoever and whensoever even if the world oil price skyrockets. As a consequence, his men had to struggle hard with political acrobats just to cover up for such knee-jerk mumbo jumbo.

As for Yusril Mahendra, SBY – a generous and kind man indeed he is – is giving the recently dismissed minister a new position for the sake of giving him a new position; hence creating redundancy with the existing ones. Yusril, by the way, is a very talented politician and recently an actor, too – one might think of a high correlation of both; but the recent Indonesian film festival in Riau proved otherwise.

Of course SBY deserves some credits, too. His leadership in Bali conference on climate change is one – if forcing U.S. to co-sign is any indication. Second, he produced a record of his self-created songs – although I am not sure if this counts.

On the economy

Demand side has been alright (consumption and export being the prime movers of the economic growth), but supply side has not followed suit: red tape is still red, logistic costs still high, decentralization brings unexpected consequences, and local elections are chaotic, leading to expected negative impacts on the (at least local) economy. Furthermore, domestic savings are still higher than investment at the time when the government has been running budget deficit and trade surplus. That is, the economy is still highly inefficient.

Also important is the role of Bank Indonesia. Its populism has been increasingly alarming. The central bankers talked a bit too much this year about credits for SMEs, unemployment, etc.; and less about its most important objective: taming the inflation and more importantly, setting people's expectation about inflation (not the other way around: being driven by people's expectation). The core inflation has been higher than that of volatile group suggesting a less than effective job against inflation in the part of Bank Indonesia. Fortunately the inflation rate this year seems to fall within the BI target, albeit close to upper bound. Bank Indonesia has again lowered its policy rate. As happened previously, the banking sectors have not responded immediately. Risk and uncertainty are still the major factors behind this. One good thing is that Bank Indonesia and the government has established credit information system supposedly to reduce the risk and uncertainty between banks and borrowers. But the effectiveness has yet to be seen. Another policy from the government regarding this issue was land certification for SMEs which so far turned out less effective as not all banks recognized the certificate as legal collateral.

Internationally, the economy has been dealing a lot with crude oil price and the sub-prime crisis originated in the U.S. The first seems more serious, as it might impact the budget severely (but forecast or prediction should not exaggerate and should look at real other than nominal price). The second one is more of blessing in disguise. The economy was not hard hit by it, because the use of such financial instrument is still limited. And because capital market is not as dynamic (as for example in Thailand), it escapes good ratings and therefore financial investors' radar screen. But of course you don't want to stay behind in this modern financial era. Sooner or later, the capital market develops itself and becoming friendlier for derivative of derivatives like sub-prime mortgages. So better be prepared.

On social issues

The country was taken by surprise by a corruption allegation of Minister Rokhmin Dahuri. It became more interesting as it later dragged in big names like Amien Rais and SBY. But as usual in high politics, it did not take long before the issue was completely 'forgotten', following a melodramatic handshake between the actors. Trivial and unimportant issue like the alleged stealing of Indonesia's claimed folk songs like Rasa Sayange by Malaysians consumed more space in the mainstream media. In the meantime they, along with the police and the government in general, shied away from very sensitive issue like the attack of some militant group on Ahmadiyah followers; so much for democracy and religious freedom.

In international arena, Indonesia took parts, in fact a lead, in Bali climate change conference. Many considered it as a success. But the roadmap looks very general and is prone to repeat the same problem as Kyoto Protocols: costly coordination. As a starter however, Bali conference is to be commended, especially in the near-stalemate of Kyoto Protocol.

The other notable international participation is of course that in the SEA Games. Indonesia ranked fourth. Not too bad given all the existing conditions, despite that many were quick to judge that Indonesia's rather gloomy performance in sport is a reflection of its poor human development index. Apparently media's judgment was influenced by the recent UN report on HDI ranks. But such blaming is unjustified. Singapore whose HDI rank is the highest among the participating countries did not fare the first. Even Amartya Sen admitted that such index is extremely crude.

In Jakarta, significant issues this year involve power change from Sutiyoso to Fauzi Bowo who therefore inherits the same old problems, i.e. flood and chaotic traffic. Fauzi Bowo however chose street begging, busking, and vending problem as his first showcase. He planned to ban those activities, forgetting that the root of the problem was the very rigid labor market. Other problems involving labors such as the Nike controversy (termination of contract, massive demonstration, and then contract extension) shared the same culprit. But as in the national level, the labor law revision seems like a taboo. The parliament has even declared not to respond any call for revision.

Finally, it is noted that intellectual (or lack thereof) public discourse was centered on the upcoming general election. In particular, some groups of self-declared youth elements have claimed that it is the time now for them to run the country. Equally interesting is the response by the so-called older generation who claimed that the youths are still incapable. It is discouraging that Indonesia's politics is still in this level of discourse.

Hope next year will all be the better.

Monday, December 24, 2007


It's amazing that a really shameful act like this escapes the media. Well not really: The Jakarta Post has it i n the front page for couple of days. Hat tip for JP. But Kompas? Let's just say, they usually wait.

About that act itself, again, anti-competition can be so nasty, even in religion.

Dear Ahmadiyah followers, I don't share your belief. But I respect it, nevertheless. Hang in there.

Kudos for JK

JK never ceases to amaze me. One day he is racist. Another day he deserves kudos. I think on average, therefore, he is alright. Well at least he makes decisions.

Real analysis

There you go. With this kind of analysis, Kompas reads much much better.

And the author, Dede with his amazing productivity here makes me really depressed.

Saturday, December 15, 2007

JK is still racist

JK was racist. He still is. He says he is proud of Aburizal Bakrie, the "first pribumi to become the richest man in Indonesia".

Friday, December 14, 2007

Privatizing Merpati

The government is planning to privatize Merpati. Great.

Thursday, December 13, 2007

Suryopratomo 0, Indonesia's SEA Games Team 1

If Suryopratomo's logic is correct then countries with higher rank of HDI should get more gold medals than those with lower rank. Here is the fact.

HDI Rank in the World
SEA Games Gold Medals as of Dec 13, 2007
Brunei Darussalam

Wednesday, December 12, 2007

Budget vs the people

I was gonna take on Andi Suruji's really bad article in Kompas (and it's a lead article by the way) today. Then I found out Arya Gaduh had expressed his frustration here.

Basically, Suruji thinks you can EITHER save the state budget OR hurt the people. Can you believe it?

Monday, December 10, 2007

When does high HDI mean you can get gold medal?

This Suryopratomo's opinion (that sounds more like a sermon, by the way) in Kompas today is special in two counts. First, it's a headline. Second, it's a logical error.

He argues (or at least strongly implies) that one should not be surprised that Indonesia is lousy in the SEA Games because Indonesia's HDI (Human Development Index) is low compared to the other countries participating in the game.

Ah. If I remember correctly HDI is constructed using 1) GDP per capita, 2) life expectancy rate, and 3) education measure (literacy rate and enrollment rate). I don't recall anything like "the number of gold medals" in the index.

They don't have it there.... come here, just don't tell anyone

I said it was a semantical gesture to save the President's face. The only logical solution is to increase the price. Gradually? Fine, if the social costs would turn out high (the downside of gradual increase is that inflation expectation may kick in faster and might as well be self-fulfilling).

But imposing multi price system like this would just create black markets, as Faisal Basri pointed out here.

For non-Indonesian readers, here's the story:

The Indonesian government has been very concerned with the stubborn high oil price. It will give a very heavy burden on the budget as the government still heavily subsidize fuel. In 2005 the government had similar situation and rightly decided to make a big cut on the subsidy and hence increased the prices. That policy was blamed for general inflation hike and increase in the poverty (some observers, including yours truly, however applauded the decision and argued that the decision has brought positive effects to the economy and that the poverty increase was also exacerbated by rice import ban).

And public strong reaction against subsidy removal turns out to be one big nightmare to the president. Especially in this election mood. So one day, he announced that no matter what, fuel prices would not be increased. That's when the TNT was planted.

But that expensive world oil price means heavy budget burden is not a myth. So there needs to be something done. But because the president has reached the verdict, other measures should be found. And here they are: Private cars will not be eligible for subsidized fuel; only motorbikes, public transportation vehicles, and (hold your breath) government vehicles are allowed to buy subsidized fuel.

What a nice opportunity for black market.

Wednesday, December 05, 2007

New working paper

Why government hurts the poor: the case of Indonesia's rice protection

Written with M. Chatib Basri. To be presented in AEP meeting, Tokyo 7-8 Dec, 2007.


Indonesia is a country very much dependent on rice. It has consistently been a rice net importer for a long time, except for a brief intermittent of self-sufficiency in late 1980s. Yet, resistance to importation is always strongly pronounced. As a result, government policy tends to bias against the majority net consumers of rice, a group dominated by the poor. This paper offers two explanations on the rice protection in Indonesia. First, it shows that the demand for protection is likely to be affected by the movement of real effective exchange rate. Second, it uses the logic of collective action framework to explain why the government opts for hurting the poor. In particular, the paper asserts that the lobby of net producers is stronger than that of net consumers, because the latter group relatively lacks of incentive to fight.

Tuesday, December 04, 2007

When young means old and when efficiency isn't fair

Sukardi Rinakit in his yet another difficult article in Kompas. Like Rizal in Cafe Salemba, I had no idea what he was trying to say.

For one, his definition of "young" now is totally different with his friend Fadjroel Rachman's -- Sukardi says everyone is welcome to be young, Fadjroel thinks you should be young to be considered young.

OK, that's really not important, sorry.

But now that I'm quite curious with all this fuss, I read their statement here. Here's what's interesting. They complained that
[T]he current economic system is such that one's [additional, I suppose] wealth can only be obtained at the cost of somebody else's.
Well, that's what we call efficiency, my friends. You want to optimize and make use of everything possible. Is it going to be fair? Not necessarily. That's why you have compensation schemes. That's why you recognize binding constraints.

Economists in that group, if any, should really tell the others about The First Fundamental Theorem of Welfare Economics and, most importantly, The Second one.

SBY's folly is his staff's loss

This is what happens if a president doesn't really know what he is talking about. His men (some very respected indeed) have to cover that up with semantics. That should feel awful, I suppose.

I wonder, is this the same president who decisively did the right thing back in October 2005?

Monday, December 03, 2007

A great thing is happening in Bali. And so are funny things...

Oh no, Malthusians are everywhere in Bali. They say, high production and consumption are to be blamed for the climate change. (It's not clear from the news whether they're wearing some clothes or not while saying that). That's in Kompas.

Another one came out as an opinion piece in The Jakarta Post (can't find the link to the article, but it's titled "Be casual as world fashion is going green" by Rita Widiadana). Let me quote some for you:
Every body, please dress casually! ... Imagine all delegates clad in formal business suits during the two-week long meeting. How much energy would we need to air-condition all conference venues?
(Um, is she sure the hotels would turn off the AC when most of them conference people wear casual?)

Then she advertised batik:
Indonesia has a lot of eco-friendly clothes like batik made of cotton and natural-based materials...
and introduced Obin who said:
[B]atik is energy-saving...
And then she condemned cotton plantation (she forgot that she just promoted cotton batik) for T-shirt production. Then she implied that blue jeans are bad for workers producing them ... (maybe I'm wrong but most batik is dyed, no?)

p/s Anybody seen that Greenpeace thing where people color their palms and print them on a white cloth? Please don't tell me that's chemical.

Friday, November 30, 2007

Planting another time bomb

Endy Bayuni is right on. SBY and his team made a terrible mistake.

Insult to women

The folks in DPR again think that women are weak and stupid. So they need to be protected and given special treatment all the time. This one is on the draft law regarding political party. It says, party can be formed only if it has at least 30% female membership in its central organization.

Filipino failure

You know what's most pathetic thing in politics? It's a failed coup d'etat.

Thursday, November 29, 2007


For god's sakes, grow up! Fighting over some old songs like that? What are you, play group kids? Like there's nothing more important to compete on?

Get a life.

Malaysians and Indonesians over Rasa Sayange, Reog and what's next, that is.

New paper

New paper accepted.

Xiaolin Ren (U Illinois, Urbana-Champaign)
Arianto A. Patunru (U Indonesia)
John B. Braden (U Illinois, Urbana-Champaign)

Language Related Differences in Environmental Benefits Estimation:
Evidence from a Mail Survey

Contemporary Economic Policy,
forthcoming Vol 26(1): 13-31


In contingent valuation studies, failing to accommodate populations with limited language skills might yield biased estimates. In the United States, there are many residents primarily fluent in Spanish. This study uses conditional logit models applied to data from a bilingual (English and Spanish) conjoint choice mail survey to evaluate the effects of language proficiency on estimates of the economic benefits of contaminated site cleanup. Results indicate that language does have significant effects on welfare estimates. The results suggest that mail surveys addressing environmental issues that may affect a linguistically diverse population should be designed at the outset with multiple languages in mind. (JEL Q51, J19)

Saturday, November 24, 2007

Pak Anwar strikes again as always

Many of you might take this Anwar Nasution's remark by surprise:
[When asked by journalists if he has an intention to become the next BI governor] No way, I've got no intention like that. Look, my position is higher than BI governor, not to mention ministers. Burhanuddin Abdullah is no competition to me. I'm a professor, not a magic doctor who bribes. So don't you speculate...
But these guys are so used to his sarcasm.

Wednesday, November 21, 2007

Analisis Politik Kompas Sukardi Rinakit is no analysis

This "political analysis" in Kompas is terrible.

Here goes:
We have to admit that what the mainstream movement (sic!) wants now is to apply a social-democrat political system and social-market economic system [it would have been wonderful if the author spent time explaining what he meant by these two phrases and hence made this analysis more like an analysis, but no]. When a group of 50 activists [what makes activists special, anyway?] with different background [again, he could have explained his sampling; of course he didn't], only 4 agreed with pro-market approach, 2 with syariah, and majority 44 wanted social-market system...
He need an introduction to statistics, really.

And here's equally ridiculous:
Frankly, I can't answer every time I am asked why an agrarian country like Indonesia has to import 3.7 million tons of rice, 1.6 million tons of sugar ...
It's like asking why somebody like him who can write a book still buys a book.

Saturday, November 10, 2007

Young vs old: another useless discourse

I am reading this.

It's amazing how self-proclaimed youth leaders think it is now their time to run the country. And it's equally amazing how the old guys think they are better than the young ones. Names, old names, new names are all over the media. But ideas are lacking.

People, just prove yourself. We don't care if you're old or young.

Thursday, November 01, 2007

Funniest joke ever

Here (Make sure to buy the print issue also. It has a great picture -- with Amien Rais, Akbar Tanjung, and many others in it. Hurry! -- It might become the most important historical picture someday!)

According to Rizal Ramli, there are 3 things responsible for Indonesia's lagging behind Malaysia, Thailand, Taiwan, and China in terms of GDP per capita. They are: 1) feudal government, 2) neocolonialism, and 3) weak and ineffective government.

Ehm, if my memory serves well, Rizal Ramli was part of the government, no?

Monday, October 29, 2007

Blame it on ... (insert anything you hate)

I can't believe this kind of article appears in Kompas -- or any newspaper for that matter. Look how its author in his attempt to attack liberalization thinks how oil crisis (what? oil crisis?) can be curbed by 1) encouraging the world to force oil producing countries to increase their production, 2) asking oil consuming countries to reduce their consumption, 3) asking countries to be 'patient' with their political ambition.

And oh, he thinks that Indonesia's own 'oil crisis' is caused by high oil consumption which is caused by large production of cars and motorbikes which is caused by liberalization.

Terrible. BNI shareholders, beware!

Friday, October 05, 2007

Shadow government

Of course everybody should be free to assemble his own shadow government or whatever. No consent from Defense Minister should be required. People do that, including kids at schools. But, why am I laughing reading this? I would love to see a shadow DPR, playing another comedy.

Saturday, September 29, 2007

New blog

Introducing "Ekonomi dan Politik di Indonesia" (economics and politics in Indonesia), a blog in Bahasa Indonesia by Chatib Basri and me. We are going to address common fallacies in the debate on Indonesian political economy. Comments encouraged.

Saturday, September 15, 2007

Banning the beggars (and givers)

The Jakarta’s new bylaw that bans beggars, buskers, and on-street vendors and fines the givers has created controversy. The bylaw itself makes some sense. Here is why.

It is a fact that these elements of society are one of the reasons we have poor traffic jams – others include bad public transportation management and high subsidy on fuel price. They are also accused of making the city unclean -- an unfair accusation as we see even some rich people throw things out from their cars to street every day. In all fairness, the Governor should fine the latter as well.

Busking and selling stuff are supposed to be legitimate jobs. Yes, many buskers can not even sing or play guitar (or other instruments). But at least they try (clapping hands and all) and you can refuse their ‘service’ if you don’t want them. Many vendors sell trivial things. But you don’t have to buy them. The problem is, they do this on the streets (mostly in traffic light areas). It is both distracting and dangerous.

Those who help directing traffic in the absence of police officers (famously called Pak Ogah-s) for a tip are also banned. Yes, some of them ‘help’ motorists in U-turns or intersections. But some others simply pretend to help while in fact they stand in your way blocking your view to the incoming traffic. Not to mention those who threaten to scratch your car if you don’t give them money. This is an issue of poor traffic management. The solution is to fix it, not to give justification to Pak Ogahs.

And now, beggars. Beggars beg because it is their choice. Do they have alternatives? Yes. At least, they can go (back) to rural villages and live on subsistence, they can apply for jobs wherever with a small pay, or they can steal. Whatever the alternatives are, the fact that they are begging is a clear indicator that it is their best choice. The benefits of begging obviously exceed those of working far from the city. Begging can even be more attractive than working night shifts in a factory with fees and tips under minimum wage. And stealing can be very costly: prison. What the Jakarta authority seems trying to do is increase the total cost of begging so as the net benefits of begging fall below those of legal working or not-working-not-begging while still above the net benefit of stealing (and other illegal acts for that matter). This is acceptable as far as economics is concerned.

But many protest, however. You can’t just ban them. Provide them jobs. While this sounds noble, it is easier said than done. Try a simple math of what a typical beggar can earn in one day in. You would be surprised that it can be a lot higher than the minimum wage. No wonder begging is so attractive; it is for them, a job. As a consequence, if you try providing them with other jobs, they might as well refuse to switch, unless you can make those offered jobs more attractive. How long can you provide such costly service, before they decide to go back begging? So, rather than providing them with new jobs, what the government should do is to ease the rigidity in labor law. Many of those working in informal sectors (or worse, begging) are well, working in informal sectors (or worse, begging) because they simply can not enter into the formal sectors due to the extremely rigid labor law. And that includes the minimum wage standards.

Shame on you, Telkom

PT Telkom, state-owned telecommunication company, leaked text messages between Tempo's journalist and a former employee of PT Asian Agri, a company under investigation for tax evasion. The messages were given away to law enforcers. Press Council condemns this action, as it violates Telecommunication Act.

Lesson learned: be careful with your using of SMS. Telkom gives them away!

Monday, September 10, 2007

Welfare state, toll road

Faisal Basri's column in Kompas today talks about the importance of institutional development. To make his point, he appeals to welfare state idea and an illustration of the controversy over the toll road price increase. In both, I think there are flaws.

First, in his praise for welfare states, he does not mention about the tax implication. Welfare state is almost identical with high tax collection. Promoting welfare state to the public would be more balance if accompanied by an explanation or two as to how the State would finance it. Furthermore, FB writes as if the implementation of welfare state in Norway, Switzerland, Denmark, and Sweden is the cause of the low inequality in those countries. This needs proof of causality. It is possible that the income inequality had been lower so the implementation of welfare programs were easier. Finally, there is an issue of size. Arguably, the smaller a country is, the easier you implement social programs like those in the four countries FB used as examples.

But what strikes me most is the part when FB talks about the recent toll road price increase. He says that the formula used to calculate the rate change is ridiculous, since it is only subjected to inflation rate every two years. I agree, the formula should probably be improved. But then FB goes on to refer to a formula for determination of bus rate (yes, bus, not even toll road) in Bogota! He writes that the Bogotans have a "very detailed" formula: QSTxFT = (SCMLi x Kmi) + (CF x PasF) + (CC x QST) + (%Tr x QST x FT) + (%M x QST xFT) -- without even explaining what the symbols stand for. Basically he says that even without knowing what the symbols are, we can already see how detailed it is, and therefore "how poor ours is". I think this is a dangerous approach to arguing. As if, we are good if we can come up with more complicated formula.

You can come up with as many and as complicated formulas as you like. But that does not necessarily mean they are good.

Update: Dewa joins the fray

Friday, September 07, 2007


APEC members are to be commended for being cautious with U.S. proposal for a giant FTA. The proposer is the main culprit behind DDA's failure. Why trust them now?

"Balance" in trade balance is overrated

I bought a donut from Dunkin. In trade terms, I ran a deficit, Dunkin a surplus. Does Dunkin need to buy some good from me? Of course not. They're fine with my money, I'm OK with my donut. Trade balance (or, imbalance, for that matter) is a positive concept. Meaning, it is useful to describe what is going on between two parties -- or countries. It is not a matter of good or bad. So, this kind of news that we still have a trade imbalance with Russia (and implying that progress should be made to balance the account) is misleading.

Friday, August 31, 2007

Steel fear, still fear, two years later

China produces a lot of steel. We need steel. When we buy, we like to pay at lower price. China overproduces: it's people don't need that much of steel. China would like to sell the remaining steel to other countries. Indonesia is close, so why not? Note that the term "overproduce" and "remaining" suggest lower price (why?). Conclusion: we can buy steel at a lower price that we used to. What's wrong with this story? Seems like everybody is happy.

But not so fast. It turns out, there is also a steel producer at home. It's been in the business for quite a long time (no, it's not an infant industry company). It worries that Chinese steel will outcompete theirs in price. What would it do? You're right. Ask for protection!

By the way, the company is state-owned. Sounds familiar?
WAIT! Where did I read that? Oh, I remember now, I posted it back in 2005. It's just that this news from Kompas today reminds me of it again. In the old posting it was the Krakatau Steel's head who said it. Now it's the Industry Minister. Same numbers, same paranoia, same confusion.

Thursday, August 23, 2007

VP and MoT are making sense

I noted that Vice President Jusuf Kalla is to be commendable for his economic view. Here is one example:
People should not only look at the negative side [of the current rising prices of basic commodities]. You should also look at the positive side. When the price of corn goes up, it is likely that the prices of chicken meat and eggs will go up too. That is a negative as far as consumers are concerned. But the positive side is that corn farmers are happy.
I wish it were said by pop economists.

Today, it is Trade Minister Pangestu who shows her inner, true economist. Here goes (my interpretation):
Alright, we will keep an eye on the prices of rice, sugar, and kerosene. When they shoot up, we will import. In longer run perspective, we should focus on increasing productivity. As for the cooking oil, it is more of CPO domestic supply problem, so we might want to adjust again the export duty of CPO.
That is, more market solution. (It's relieving that Ibu Mari seems not to buy the 'wajib pasok' option (domestic market obligation) -- an idea supported by Ministry of Industry and Ministry of Agriculture). Good going.

Wednesday, August 22, 2007

Market failure and government failure: which one do you prefer?

When social interest does not line up with private interest, we say the market fails. (The economist will say: It is when the social benefits curve lies below the demand curve; social optimum is at the crossing of social benefits curve and supply curve while market equilibrium is at the intersection of demand curve and supply curve. What drives the wedge? Negative externality).

Externality in the market invites government intervention: e.g. use tax to deal with negative externality and subsidy with positive externality. When there is an externality problem in the government we say the government fails.

When we have both market failure and government failure then we are really in trouble. What are the ways out? We can rely either on the market itself or on the government.

In cases like that of Indonesia, it is hard to believe that the government is efficient. The fact that we are still struggling with bureaucratic reform reveals otherwise. In other words, there are externality problems in the government. We do have government failure.

So it strikes me that some noted economists call for government provision of safety net as a prerequisite for removing the distortions in the market. That implicitly assumes that there is no problem with the existing government. Well, I don't buy that. After all, if the government can not solve its own problem, how come it even want to solve the problems in the market?

2008 State Budget

Assumptions: 6.8% growth, 6% inflation, 7.5% BI Rate, IDR9,100/USD, and USD60/barrel of oil price.

The 6.8% growth assumption is wishful. I think the best we can go in 2008 is 6.5%.

Tuesday, August 21, 2007

EPA, PTA, FTA: tomato potato

This whole EPA party scares me. You may call it EPA, or FTA. To me it is PTA. And I am no fan. As we argued in this paper:

However, Indonesia’s engagement in FTA talks might not go as planned. Despite series of negotiations, only a few FTA schemes show progress, if any, with regards to trade liberalization. There are three factors that contribute to it. First, thus far FTA facilities are underutilized. Second, the proliferation of FTA distorts resources away from multilateral agreement, i.e. WTO. Third, FTAs are prone to overlaps which in turn will create very complicated conflicts across rules of origins – ‘spaghetti bowl effect’ (Bhagwati, 1995; Panagariya, 1998). This should not be underestimated as in any FTA there are competing protectionist interests in all sides.

Unfortunately, further unilateral liberalization is not easy amidst the creeping protectionism, whereas the progress of multilateral agenda is still in limbo as Doha seems to go nowhere. So Indonesia is left with a difficult position. That is, to rely on FTA/PTA for trade liberalization. There are at least three caveats to this. First, FTA should be in line with MFN non-discriminatory principles.

Second, engagement in any trade arrangement with foreign partners should be consistent with the effort to improve the quality of institutions at home. Third, when progress is made in the supply side, further unilateral liberalization should be resumed.

Recent development in this regard is rather mixed. So far, AFTA seems to be on track in this regard, but some bilateral FTAs might lead more toward trade diversion rather than trade creation. Indonesian government considers regional cooperation as a building block for longer term multilateral trade liberalization. It claims that AFTA and APEC are consistent with the Multilateral Trading System of WTO, including the enabling clause and General Agreement on Trade in Services (GATS) (WTO, 2007).

I am skeptical.

Update: Yudo at Ruang 413 is less skeptical, here and here. He says, trade diversion is not necessarily welfare deteriorating if you make an FTA with someone who is not too different (in terms of efficiency) from someone else outside the FTA. But why would you want to make an FTA with someone who is not significantly different from others?

New paper

(Full draft will be made available here soon; the paper was prepared for and presented in a conference organized by FONDAD).

M. Chatib Basri and Arianto A. Patunru,

University of Indonesia, 2007

How to Keep Trade Policy Open: The Case of Indonesia


We survey the dynamics of trade protection in Indonesia. In the aftermath of the 1998 crisis, Indonesia underwent impressive trade liberalization. However, from 2001 on, protectionism was on the rise again. The paper aims to elucidate how conflict over trade policy takes place in Indonesia after the economic crisis and to examine the prospect for further trade liberalization. We argue that it is unwise to assume that pressures for trade protection will easily subside. To support our key arguments we discuss the cases of rice import ban and crude palm oil export tax. We conclude that unless Indonesia can maintain the competitiveness of the real exchange rate, overcoming the supply side problems, improving infrastructure and reducing high cost economy, further trade liberalization will not be easy.

Saturday, August 18, 2007

2007 State of the Nation Address

I thought I was listening to SBY's speech on the Independence Day. As it turned out, I was dreaming. Here is what I heard in the dream:

My fellow countrymen,

Congratulations to all of us. Today we are celebrating the sixty second anniversary of our beloved country.

I’m standing here before you with good news. I will not bore you with statistics. This is no place for gloom nor is it for blame game. My staff – I mean my vice president and cabinet members – will tell you anything with numbers later. Because I will only talk about three issues and I do not want to distract you with allusion to figures.

First, politics. I know full well that many of you are still anxious about our relationship with Singapore – sand, telecommunication, extradition, military training, transshipment, et cetera. Don’t you worry, my fellow countrymen. Singapore is no threat to us. That little city state is not to be taken too seriously. Yes, they have technology and money. But Karimun, Bintan, and Batam are our properties. We’ll do business with them, and we’ll do it right. Lee Kuan Yew thinks he knows Indonesia. Well, I’ll show him what the real Indonesia is.

Indonesia is the rising superpower. This great nation has taught the world how to run a democratic election. It is now in the center stage of world democracy. So let’s seize the moment. There are still loopholes in our local election, in our bureaucracy, in our parliamentary system, and in our legal system. But we’re making progress.

Some of you worry that zero tolerance to corruption means zero growth. That is a valid concern. Just like what we do to pollution, let’s minimize corruption, if we cannot eliminate it altogether now. If this sounds too shocking to you, let me put it in other words. That is, we’ll fight against corruption all out, but we can only do it gradually while at the same time fixing our legal framework. That way, we can respect the presumption of innocence. That way, we don’t need to waste time fighting over baseless allegation.

That includes me. Yes, I made mistakes. I should’ve not entertained people who just wanted to attack me ad hominem. I promise you, no more overreaction on my side. But I welcome anything constructive rather than pure nuisance. Great leaders will always deal with noises, be it external or internal. It is how they manage them that differs them from no-so-great leaders. I want to be one of the former.

Second, on the economy. We have recovered from crisis. We sure don’t want to fall into another one. Our fundamentals are good and reserves are sufficient. That is of course no reason to go imprudent. Meaning, we have to weight benefits and costs very carefully. We want lively real sector; but we don’t want too high an inflation. We want high growth; yet we don’t want poverty. We want clean environment; but we also want affordable energy. What I’m trying to say, my fellow countrymen, is that tradeoffs are everywhere. I want you all to understand this. That patience is a virtue. That short-run pain might be required for a long-run gain. That friction might occur while waiting for the next stable equilibrium. That inefficiency will subside, and efficiency will take over. And that you can’t have everything at the same time, pronto.

We are a key player in the world economy. While the Doha Development Agenda is in limbo, we believe that non-discriminatory principle is the best. So, we are still in support for the WTO and hope it will materialize someday not too far from now. We, together with countries we lead in G-33 will demand United States to stop fooling around with their agriculture. We will also continue our unilateral liberalization. Because waiting is losing. We talk with other countries but are careful with bilateral agreements. We don’t want too many FTAs as they will lead to great confusion, complexity, and conflict. And they distort our resources away from multilateral improvement.

Finally, social matters. We are both healthier and more educated now. However, modern life is followed by modern disease and epidemic. We should improve our education system as well as our health support system. We have to work hand-in-hand with other countries to combat HIV, avian flu, and God knows what comes next. Our school enrollment rates have never been better. But quantity means not much. We have to keep improving the quality of education. We will start by increasing the salary of teachers in primary and secondary schools -- and providing the education gratis. Where does the money come from, you ask me. From removing the subsidy enjoyed by universities. Basic education is public good. University education is not.

Now that I’m talking about subsidy, let me go on. We’ll cut completely the subsidy on fuel, kerosene, and gas. That way, alternative energy can become more competitive and the pressure to environment is reduced. (I can add employment issue here, but I’ll save that). Yes, there will be a short term dislocation. But we will dampen the impact by conditional cash transfer combined with cash-for-work programs. We only need to make sure that everyone understands that such programs are temporary. Once the coast is clear, everyone has to be on his own. We don’t want another time bomb.

That’s it, my fellow countrymen. Let’s get back to work.


Thursday, August 16, 2007

Virginity and the mayor

Apparently the mayor understood the power of reputation. So when his jurisdiction suffered from a stigma of free sex among school kids, he decided to take a drastic measure. Yes, test your virginity (disclaimer: the link goes to Poskota, a newspaper I hardly trust, but hey, this is funny). The news reported that the desperate mayor would run virginity test to 3,500 female students in Indramayu and report the result to their parents.

I wonder. Would he go check the dudes -- not just the gals? How? Would the test be so cool, it could also detect your past? 'Cause it would be interesting to know when was the first time the mayor 'got lucky', and with whom. By the way, did he consult with his kids? Just to make sure his lovely daughter, if any, would pass the test, maybe?

Wednesday, August 15, 2007

A loyal tourist, a new tourist and a refuser

Oh, he's here again. With the same tone -- no, not the economics one, but the other one. And, look, there is another Nobel laureate in town. Quite an accomplishment, I guess, for the country to be visited by two Nobelists? Honestly, I prefer Beyoncé.

Speaking of Nobel, Indonesian own awards were given out yesterday by Freedom Institute. One awardee, Franz Magnis-Suseno refused the award. Because Freedom Institute is related to Aburizal Bakrie who is related to Lapindo Brantas, the company blamed (by people, not so far by court) for mud flow disaster in Sidoarjo, East Java. Isn't this like refusing a Nobel because Alfred Nobel is related to dynamite? Interesting. Hm, maybe one should also condemn scholarship given by, say, Bill & Melinda Gates Foundation because it is related to Bill Gates who is related to Microsoft that is related to antitrust case?

I feel like I am watching sinetron Hidayah. Where bad people are too bad to be true and good people are too good to be true -- no one in between.

Monday, August 13, 2007

Din's flipflop continues

Hizbut Tahrir Indonesia wants a caliphate. Its members believe democracy is bad. Because "it brings you secularism, an arch enemy of Sharia".

Then enter Din Syamsuddin, the chairman of Muhammadiyah. He says caliphate system is good and "we shouldn't reject it". But he also says, "[Caliphate system] should not undermine the inclusivism and and pluralism of the nation" and it should conform with Pancasila.

We know Pancasila is almost identical with democracy. 'Inclusivism' and 'pluralism' are the children of democracy, or so we were taught in schools.

So, Din, apparently you have to choose one. You can't have 'em both, Mister. Trick or treat?

Teaching Intro in S1

The undergraduate faculty mail list is running a thread discussing about opening up new fields such as tourism economics, health economics, et cetera. I don't think it is a good idea. Even now they already have too many fields -- and again, it is undergraduate level! What I think is more important is to focus on the core principles of microeconomics and macroeconomics, while introducing math/stat and econometrics as the key tools of analysis and let the students apply them in their senior thesis on whatever topic they are interested in. To harness those interests, they can choose electives: environmental economics, monetary, trade, and so forth. Offering too many specializations in undergraduate econ program is an overkill.

Or worse yet, this is even more likely to happen. My co-author Laura Taylor has a very interesting paper about econ PhD students with weak foundation. I believe what you are taught in undergraduate affects that too (your understanding about economics, while being a PhD student). It is true that you don't have to have an econ undergraduate degree to become a good PhD economist, or economist. But that doesn't mean you can skip your extra homework to understand the basics. And while you're doing that, you might want to set aside many other stuff for a while. You can always get them back later.

Saturday, August 04, 2007

CSR (2)

The populist bastion from Kompas is on fire again. Now on CSR. Its today’s Fokus focuses on the all-good-thing about CSR. They invited businessmen from corporations that had successfully implemented CSR. They did not even bother to ask those who had not. Of course they got positive responses only. This is what we call selectivity bias.

They run five or six articles praising CSR. And they all miss the point. What is being objected by business majority is the coercion, not the merit of CSR. Yes, CSR is good. Yes, it has positive correlation with profit – you don’t need a Porter to tell you this. You don’t even need Perkins gossip book to make your case. Every company who runs CSR -- in the absence of coercion from government ran it for profit consideration. So it should have positive correlation with profit. Otherwise, it would not have been done in the first place. Of course those companies will tell you they are doing it purely out of social motive. That is a lie. They are doing it to attract more customers or to avoid being attacked by community members or to hide something bad they have done, e.g. tax evasion.

Imagine you just invested big chunk of your money in some stocks. Then you read in the newspaper that the company will give out a large amount of money for CSR. If you really love CSR, you should be glad and even encourage that company to use all the dividends for that, should you not? You will praise the CEO, will you not? I guess, if you are just honest, the answer would be no and no. If you are both honest and smart, you will agree to allocate a little amount of profit for CSR – only to the level where it is sufficient to impress the public so as to turn them into your loyal customers. You don’t want a CEO who spends all your money just to build little bridges out there.

Again, CSR is good. So is drinking more water and less coffee. But as you do not want the government to put you in jail if you do not drink more water, you do not want the government to put you in jail if you do not do a CSR. After all, drinking too much water makes you puke.

Thursday, July 26, 2007

Vulture investor

What is vulture investor? If it is someone who "who buys up defaulted emerging market debt and presses authorities through various legal devices to press the country to pay more", then I think he or she is smart and the blame should go instead to the lousy legal system in the 'victim'(?) country.

Does the term also apply to business to business (b2b, as opposed to b2g)? I don't know. But even if it does, why should a vulture investor be condemned? I don't get it.

Wednesday, July 25, 2007

Independent candidate? Yeah, right

There is no such thing as 'calon independen' (or, independent candidates -- I'm talking about election). I don't understand why people make such a big fuss over this issue.

Whoever you are, you can't run a populace alone. You would need support, cheer, organization, funding and all that. And that my friend, is called, 'party'.

Don't tell me you're independent. Because that is bullshit.

Update: A.p. at Cafe Salemba is less pessimistic.

Tuesday, July 24, 2007


Shoe manufacture workers are protesting against Nike. They demand that Nike extend its contract with its employers. Nike, on the other hand, was disappointed with the quality of the shoes. So, it gave a 9-month notice to its contractors before terminating the term, as required by law.

The workers should instead ask compensation, if any and justified by law, from their employers, not Nike.


Corporate social responsibility (CSR) should not be made mandatory by the State. By its very definition, CSR is voluntary action. It is part of profit maximizing effort by corporation. Yes, a few countries have experimented regulating it. And they are all in error. The main responsibility of corporation is to maximize profit so it can pay good dividend to its shareholders. If CSR is to be imposed on companies, then to be balanced, why don't you also impose something like PSR (people social responsibility)?

We have seen many companies made successful CSR. And they did it without any mandatory regulation.

Monday, June 04, 2007

The Politics of Corn (1)

I’ve been lazy in boring you with economic fallacies and errors in news media. They are just too many. But I think I just can’t let go the extremely foolish and ridiculous ones. Like this.

It says, the corn farmers in North Sulawesi are requesting a floor price guarantee and market access. They argue, the only way the country can achieve self-sustaining corn production is by providing price and market guarantee. With that, “the farmers need not be supported anymore”. Usually, they complain, “when the price is good, supply will increase and price will go down again”. See the irony? Of course, that is how it works. What you ask is actually to keep the price 'good' but to limit competition from your fellow farmers.

And as usual, Minister of Agriculture comes into their defense. He says it doesn’t make sense if a country with abundant land like Indonesia has to import corn.

Then why don’t you plant ... stones? We have plenty of land, so you can plant stone everywhere. The price might be bad, but you can always ask the government to provide price support. Not many people will eat stone, but you can always ask the government to provide ‘market’ for it. I am sure Minister of Agriculture will be happy to help you.

Wednesday, May 23, 2007

Smart Environmentalism

Says Ed Glaeser,

Smart environmentalism has three key elements. First, policies should be targeted toward the biggest environmental threat: global warming. Second, our resources and political capital are limited. This means we must weigh the benefits of each intervention against its costs. Third, we must anticipate unintended consequences, where being green in one place leads to decidedly non green outcomes someplace else.

Tuesday, May 22, 2007

So what does 'hero' really mean here?

Remember the time not so long ago when there were a couple of ex business crooks who were invited to Istana after they expressed their willingness to return the money they had stolen? Yes, many people were outraged. Calling the government a dirty whore who did not have dignity. A minister reportedly said that if those crooks were asking for forgiveness and managed to return the money (not even the whole!), it would be good enough. Some agreed, some not. Nevertheless, the law seemed so flexible.

Now, another story. The moral is basically the same. But because this one involves Amien Rais, who are heroes to many, people easily overlook the similarity. Amien confessed that he took some amount of illegal money from Rokhmin Dahuri the then Minister for Fishery and Marine Resources for his presidential campaign in the last election. Rokhmin, on the other hand, has announced that the current president SBY, along with the former president Megawati and another then-candidate, Wiranto did accept similar funding. Following the Rokhmin's report, Amien confessed and said he 'was ready to go to jail, if he had to'.

Of course Amien's confession seems loaded: to at least bring SBY down. Well, we agree: if SBY is proven guilty, of course he should be punished. So should Megawati and Wiranto and Amien himself. So, let's hope that these cases are taken seriously by the law people.

But, now come the interesting part. The chief of MPR, Hidayat Nur Wahid seems to think that Amien Rais is a hero. He suggests that Amien should not be taken to jail. Because Amien is 'a national figure who is well respected'. If Amien is found guilty, Hidayat conutinues, he can just return the money. Now, that sounds familiar (see the first paragraph above).

Seems that we really don't need Laws. After all, forgiveness is what matters. No wonder we're so safe.

Update 1: It is just getting more and more interesting. Now a law expert thinks Amien has given enlightenment to the study of law. I wonder, if he is such a noble person, why did he have to wait more than 2 years before admitting his misconduct? Why did he have to wait until Rokhmin blew it all?
Update 2: From the court, as reported by Kompas, Amien Rais actually received Rp 600 million, not Rp 200 million as he confessed. Let's wait and see if he 're-confesses' or denounces the extra Rp 400 million.
Update 3: President SBY reacted (yes, after long deliberation, I guess, as usual). Basically he accused Amien Rais of trying to ruin his reputation. Quoting the Law, SBY stressed that such action by Amien Rais was against the law and could lead to nine months in jail. But then, SBY implied that he would not take the case to the court, "unless Amien accuses me directly in public". That is ridiculous. If SBY is so troubled by Amien, why doesn't he just sue him now? If he doesn't think he should sue Amien, why bother with press conference to explain?

In the meantime, Sutrisno Bachir, the head of PAN (Amien's party, too) said he would return the money Amien and PAN received from Rokhmin. In TV, Bachir said, "We should return the money, because it belongs to the people of Indonesia". Another hero, I guess. Who rushes to do good deeds when found guilty.

Fahri Hamzah from another accused party PKS, who now is a House member, said that the House Board has no right to investigate him, because at the time (of accepting the money from Rokhmin), he was not yet a House member. OK, but does that mean you're innocent?

What a comedy.

Monday, May 21, 2007

Fixing a distortion with yet another distortion

As reported by The Jakarta Post today, Indonesia's biofuel producers are urging the government to make the use of biofuel mandatory for factories and vehicles.

How can you expect a progress if this kind of thinking persists? I hope the government doesn't approve this silly idea. There is a better way to become more eco-friendly : remove the subsidy on the competing, fossil-based fuels. Biofuel is a good idea. But protection like that asked by the Biofuel Producers Association is not.

Tuesday, May 08, 2007

Another new article

Accepted conditional on minor edits (more detail, later). This paper explores on the same survey as this.

Xiaolin Ren (U Illinois, Urbana-Champaign)
Arianto A. Patunru (U Indonesia)
John B. Braden (U Illinois, Urbana-Champaign)

Language Related Differences in Environmental Benefits Estimation:
Evidence from a Mail Survey


In a contingent valuation study, failing to accommodate populations with limited language skills might yield biased estimates of environmental benefits. In the United States, there are many residents primarily fluent in Spanish. This study uses conditional logit models applied to data from a bilingual (English and Spanish) conjoint choice mail survey to evaluate the effects of language proficiency on estimates of the economic benefits of contaminated site cleanup. After correcting for other factors, the results of both pooled and separate analysis of the language subsamples indicate that language does have significant effects on estimates of the economic benefits. Differences between the subpopulations who declare Spanish as their primary language and those who responded to the Spanish version of the survey suggest, although not conclusively, that translation of a survey into a second language can change the variability of the responses and pose econometric challenges. The results suggest that a mail survey addressing an environmental issue that may affect a linguistically diverse population should be designed at the outset with multiple languages in mind.

Sunday, April 15, 2007

New article

Coming up in the American Journal of Agricultural Economics. Abstract:

This article uses latent segmentation analysis to estimate the benefits of contaminant cleanup in Waukegan Harbor, Illinois. Survey responses to attitudinal and perception questions provide significant information about the existence of distinct preference groups. By comparison, the predictive usefulness of demographic covariates is unclear. The expected aggregate willingness-to-pay of Waukegan homeowners for full cleanup is approximately equivalent to a 20% increase in the market value of homes. The aggregate estimate is little affected by the identification of preference clusters.

Friday, March 30, 2007

The Politics of Rice 26

It's been a while. But in that a while, you could have amused yourselves with lots of media coverage on the alleged corruption in, again, Bulog.

Just one day before the first news broke up, one student came to me. She was furious at my liking the decision to import rice. But I made her convinced that while I'm all for rice market liberalization, I never like the idea of giving a monopoly to Bulog.

Dissolve Bulog.

Thursday, February 22, 2007

The Politics of Rice 25

The police seems to get it. But Kompas? Not really. A headline today reads, "The Police Caught Rice Speculators". That gives an impression that rice speculation is a crime (how about those guys speculation in the stock exchange, Sir?).

But if you read through, apparently the police's reason is different. What they are after is cheaters, not speculators. There are people who buy rice from Bulog at subsidized price and sell it to other with higher price (this is 'speculation', and I don't think is a crime) and replace the label as to hide that it is from Bulog (this is the cheating -- a crime).

Remember the fuel-kerosene cases? Yes, the story is similar. You should not punish me for buying subsidized Pertamina fuel, stocking up, and selling it at higher price. But when I mix it with kerosene and tell you that it is the same fuel you can buy at the gas station, I lie to you. I cheat. Punish me for that.

Wednesday, February 21, 2007

The Politics of Rice 24

According to Bustanul Arifin, if the Indonesian national socio-economic survey (the Susenas) is conducted and if the poor are sampled, most likely the poverty number will increase (supposedly due to the increase in rice price), a condition that worries the government.

I too believe that the absolute poverty is likely to increase -- the late harvest would not be able to compensate for the skyrocketing rice price.

But what strikes me is the fact that Bustanul implies that there is a possibility that the poor will not get sampled in the Susenas. That is ridiculous. Is he saying that you can actually exclude the poor from such survey?

Monday, February 19, 2007

The Politics of Rice 23

Aha, Kompas finally believes that the domestic rice supply is short. That's one step in the right direction.

I am not surprised that they are surprised.

Saturday, February 17, 2007

The Politics of Rice 22

So now they blame it on hoarders and speculators. Said newspapers, those who buy and stock up cheap rice for profit reason should be taken into jail.

I say bullsh*it.

Everybody should be free to buy anything he wants. Yes, you say the law prohibits stocking up of 'basic necessities'. Well, even that law is ridiculous.

Of course it seems unfair that in the midst of high demand, some people use the opportunity to make more profit. But, hey, that is the very nature of entrepreneurship. You give a bad name to 'speculation', but 'speculation' is what you do in business. Only good speculators ace in business.

Government, don't listen to those liars. If you want to discourage stocking up, create competition. Open up. Imported rice will do the job. Not prison bars.

Saturday, February 10, 2007

Joyful flood or bad journalism?

So people are mad at Minister Aburizal because of his remarks on the flood disaster. It was shown in a TV news, the minister was saying that all the bad news about flood in Jakarta within the last week was an exaggeration. The fact is, according to the minister, what we see on TV is happy flood victims who, while talking to the reporters, are smiling and laughing with joy.

I would have said the same thing. Aburizal was quite right. I mean, come on, turn on your TV now, pick any domestic channel and watch the news. Now, do you see that reporter swimming wet with a yellow rain coat struggling to keep his microphone dry? Yes. Wait until he gets to interview some random flood victim. There he is. He usually goes standard, ‘Pak, what do you think about the flood?’ And the interviewee goes ‘Well, my house is two meter sunk now (smiling). The government should help us (laughing)’. In the background, his fellow victims are waiving hands to the camera, and kids are free jumping to the brown water with joy.

So who says Minister Aburizal was wrong? I agree with him: people do look happy.

But I’m not Aburizal. The way I see this is beyond laughing. What I see is a terribly bad journalism. I don’t think the bad news about flood disaster is exaggerated. But I think those TV journalists fail to bring us the true picture of reality.

The thing is, they are lazy. Instead of documenting the very life of the victims: how they can’t sleep because of water and starving, how they cope with extremely poor sanitation, how they try to keep their babies alive, and so forth; they, the reporters, choose the easiest way: random interview with useless questions. (Well maybe not too lazy, because they seem pretty heroic: they jump into the water – but what is the point? Let’s see: Now that there is this new fatal disease, the evil amalgam of dirty flood water and mouse urine, are they still going to give life report swimming?).

I guess the journalists could use some economics principle: trust what one does, not what he says. Please, do not give us crappy interviews, because they are nothing but sweet talks. Show us the reality. Show us how the people live their life. More cameras and fewer microphones will do the message (and avoid Aburizal’s misunderstanding).

Wednesday, January 03, 2007

Blaming competition

People are good in blaming game. But, not only that. Some go beyond blaming game to disguised protection seeking. And some think they have more authority than they actually do. At least there are three cases recently that are in point.

First, shopkeepers (small scale traders) vs minimarkets vs hypermarkets. As reported in The Jakarta Post, shopkeepers are angry at minimarkets. One of them complains, "I lost most of my customers when a minimarket opened up right in front...". And the government of Jakarta, not surprisingly, thinks they have to do something regarding the competition. Says one city official, "We are trying to temporarily stop issuing licenses for the establishment of minimarkets, because there are too many shops opening up... ". Of course the minimarket people are not happy. ... says, "...". What do we learn from this? A) The Jakarta government is lousy in doing its job managing city zoning. But rather than dealing with it, they blame business competition. This is rational though, since by doing that, the government can use populist sentiment to gain sympathy. B). The minimarket rep seems to be just playing with words. He argues as if he is concerned with consumers' welfare. But go ask these minimarket guys about their opinion toward hypermarkets like Carrefour. Now it is just like a role-playing game: suddenly minimarkets would want protection from hypermarkets, just like shopkeepers want protection from minimarkets; in all case, consumers are actually of no concern.

Second, IGOS vs Microsoft. As reported by Tempo magazine, there has been furor over the government fishy decision to buy Microsoft softwares instead of using the open source IGOS. The Monitoring Committee for Business Competition (KPPU) accuses the government of violating Presidential Regulation No. 8/2006 that requires open bid for such procurement. The case made by KPPU is well taken. It is quite obvious that had the government run a tender process, IGOS would have won, because it is an open source. Using IGOS would therefore save taxpayers' money. But, KPPU should not go too far in its argument. For example, it argues that one benefit that would be gained by using IGOS rather than Microsoft is employment creation. As true as it might be, employment is not KPPU's business.

Third, the Adam Air missing plane. As covered by media (e.g. this and this), a passenger plane owned by one of the Indonesian carriers, Adam Air is missing. Some people have started to blame the high competition in air plane business as the root cause of this and other accidents. According to them, the low cost carriers have been pushing their costs to the limit while risking the safety. So, the government should re-regulate the market. It is true that low air fare might come with low safety level. But that is not an issue of competition. Rather, it is an issue of imposing and enforcing safety standard. If the safety rules are enforced, some of those cheap planes would be out of the business; without having to deal with competition policy. This is also the case of cheap medicines, for example. Some of those label-less drugs are out without approval from Health Department. But, it is again an issue of the government failure to enforce its safety regulation. It is not for competition policy.

Update: Rasyad Parinduri has a rebuttal here. Ujang and Arya have made the discussion clear. Thanks, guys. Sorry if I was being obscure. What I was really trying to say was that many times, we are lousy in X, but we blame Y and do something on Y instead of X, just because the former is easier even though it would not solve the problem. I accept Arsyad's point that "lower air safety is the consequence of competition"; it is very rational for business to use anything possible to minimize cost including finding ways around safety standards, if any. If I know that the government is lousy in enforcing safety standards, than I would economize on that; I would be stupid not to use that opportunity. Who's to blame? Cheap tickets? As Ujang said, this is not an easy thing (as indicated by the fact that I failed to make my point clear, I suppose): people can easily confuse safety and competition. Yes, they are related, but the policy implication would be very different. Imagine this: if somehow the government can really enforce a good safety standard on airline business, I would expect that tickets would be more expensive relative to the current fares. Note, however, that the business response is due to the enforcement of safety regulation policy, not competition policy.

As a side note, let me say one more thing before people accuse me with 'so-now-you-want-the-government-to-do-something' or 'wtf-you-oppose-seatbelt-requirement-but-you-want- safety-standards-on-airlines'. This is an issue of information. Air passenger has the rights to know whether the carrier he is going to use is too old to fly, has a cripple pilot, and so forth. Then he would make his own decision: cheaper ticket slash old bird slash cripple pilot or more expensive ticket slash newer carrier slash qualified pilot. Where is the government here? Its role is to make sure that the information is carried through. How? Well, let them think. But here's an illustration: require every airlines to announce the age of the carrier and the qualification of the pilot in ticket boxes. (Note that this is different with seatbelt case. When you buy a car or take a cab, you can check first whether it has a seatbelt or not. Then you decide. Unfortunately, you can not do this to airplanes).