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.