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.