one week wrapup

It was a very busy week (well three weeks actually with Paris and Bangkok - Paris for this and Bangkok for a talk in Thammasat University). That explains the blog vacuum. Not that there was no interesting stuff to blog while in UK. Of course I should have at least talked about Wimbledon (my favorite Ana Ivanovic, who I 'found' last year, lost it to a Chinese, Anna Kournikova lost it to a fellow Russian and was called bitch by a male chauvinist pig who happens to be a top official at ATP), Euro Cup (back from Bangkok that Saturday at 1.30 am, only to find my fave flying Dutchmen lost to the Russians -- yes, Ape, I know only that much about football, I mean soccer, sorry I mean football -- so I was in grief while trying not to miss the flight to London; later teasing Christian von Luebke my German co-author that the Turks played better than the Germans -- I had no idea actually -- it was just a bad luck); and about the Mandela Concert (I should have gone to Hyde Park to see Amy Winehouse! But I had promised Alfie some good reads, so that came first -- well in all honesty, maybe I was still traumatized by Monas incident so, no political rally for awhile? Sorry, Mandela, but happy birthday, and you know I hate Mugabe, too).

OK, that's it. As for the more serious stuff, we would post them here, later.

Addendum: And I did my homework last evening, i.e. reading a one-week worth of belated news on Indonesia. It was quick, because apparently not much important things happened last week. Except maybe two. No, three. First, House will put a cap on fuel subsidy. Kudos to some parliamentarians (some ones, not those others who keep talking bullshit like "hak angket" against subsidy reduction). Second, the students' riot with molotov cocktail, car burning and all (gee, "hari gini?"). And third, Rizal Ramli. Whatever happened to Rizal? He sounded soooo angry. I mean he is usually angry. But not at this level. (Someone just told me: all the three issues above are actually related. Really?)

Mobile operators guilty of prixe fixing

KPPU (Commission for Business Competition) found six mobile operators guilty of price fixing text message services.

Do that to Organda, too, then.

Taxi fares should be expensive, says well, who else?

Jakarta's Organda (that is the name of public transportation companies association) issues a decree for increase in taxi fares. It says, those who set price below that stated in the regulation will be punished.

Ridiculous.

On the investment climate

From the OECD meeting in Paris (too bad I was there not for watching Nadal beat Federer), here's my comments for the preparation of OECD's survey on Indonesia, to be launched next month:

1. In order to improve the investment climate in Indonesia, the government has issued commendable policy packages, including three presidential decrees (Inpres 3/2006, Inpres 6/2007 and another one underway), infrastructure package, financial package, and 2007 Investment Law. However, we often heard and learn that these good packages are followed by not-so-good implementation. Many packages could as well end up as laundry lists and evaluation on them are oftentimes reduced to routine check-listing that overlooks priorities.
2. Most concerns heard from the business community (domestic and foreign) deal with the new Investment Law and its derivatives (Presidential Regulations 76/2007, 77/2007, 111/2007) – albeit its praised, significant improvement over the old laws. These concerns include
1. The fact that attempts or needs to limit foreign investment are not entirely well-argued. E.g. in express delivery service sector, foreign service is perceived as competitor to the domestic service while in practice they are complementary.
2. Grey areas in the Negative List regulation. For example it is stated that the regulation "shall not reduce the obligation of investors to obey the prevailing provision and requirements to undertake business activities, which are issued by authorized technical institutions that supervise capital investment fields..."
3. The Report mentions about reducing the size and scope of government. Particularly important in this regard is the issue of coordination between central and local government.
1. There have been problems such as reluctance of local governments to undertake policies issued by the central government. For example, many Finance Ministers regulations are simply ignored at the local level either because they do not come from Minister of Home Affairs or because they are not in direct interests of local governments to raise their own-revenues.
2. There is issue about low capacity at the local level. For example, the government decided to delegate the authority to establish new firm to local governments only to find that it did not speed up the process but in fact slow it down and hence the central government decided to take the authority back to Jakarta.
3. The fact that the salary of DPRD (local parliament) members is a simple function of the local government's own-revenues has been found as a source of incentive for the local parliamentarians to quickly (and carelessly) approve any proposals from the government that lead to increase in charges and retributions (local taxes).
4. Bureaucratic reform. As we know the government has started to reform itself as has been demonstrated especially by the MOF. Alas there is a surprising reaction from the business community and that is their aspiration for not going too fast with the reform! To take a very recent example, a couple of weeks ago the corruption commission (KPK) raided the Customs Office at Tanjung Priok Port, following a neat and silent coordination with Minister of Finance and DG Customs. The Commission found hard evidence of illegal money collection and even caught some officials red-handed making illegal transaction. The raid was considered as a big success and was highly regarded by the media. However, it was followed by complain from some business people that that event might backfire as the Customs official may become "less cooperative" and as a result, slow things down at the ports.

This phenomenon is also evident in the local level. Our study on domestic trade barriers found that the trucking costs are very high in Indonesia compared to those in the neighboring countries. Many of these are due to illegal charges collected by police, DOT officials, and local thugs. But surprisingly, many respondents showed hesitance to cooperate with our researchers, because they were afraid that the study would come up with a recommendation to clean up the road from such charges that would then backfire in the form of higher level of insecurity!

These two anecdotal evidences are not to be underestimated. Are we looking at the "dilemma of reform" or to put it in differently: are these necessary costs of our long-awaited good governance and transparency (or bigger yet: democracy)?

5. Finally my colleagues representing the government has mentioned about the policy constraints of the Indonesian progress, including the nature of democracy that is still in the maturing process and the lack of trust from the public at large. What are the binding constraints, in the government's point of view, in terms of economic dimension? The Report implies that such constraint lies more on the supply side rather than the demand side. In particular, problems in infrastructure and logistics have been mentioned as key constraints. Is this a correct reading and are there any other constraints that bind?

Thank you

Malaysia follows suit

They, too, have to raise BBM price.

BI Rate Up

So they raised it 25 bps. Another 25 is coming. And another one before the year ends.

Phew Energy

Eureka! I have found a new source of energy! This is a clear winner. I call it Phew Energy. Here's how it works: take a deep, deep breath, hold it for 5 seconds, then blow big through your mouth, full power ... phew! I sure think you can move some stuff an inch or two with that.

Mind you, this is far cheaper than that Blue thing. Now, somebody please get me to Cikeas!

BI decision tomorrow

I expect, alright not only expect but also hope, that BI will raise its interest rate by at least 25 bps. And without much talking.

Why students' protests?

According to Ross McLeod and Steve Hanke,

Other protests [against fuel price increase] have been driven mainly by student activists from various universities, whose tertiary education does not seem to have imbued them with the inclination to properly analyze the policy issues involved. Absent this analysis, the conclusion is always the same: Price increases are bad, end of story. Perhaps their response might have been different if the government had been able to couch the fuel price increases in terms of a reallocation of spending away from consumption subsidies and into investments in Indonesia's future.

HT: Ross

The Unlaw of Demand

This law is not happening in here so long as subsidy prevents it.

HT: Greg Mankiw

Indonesia Project Blog

We welcome the new blog by friends at ANU.