The Politics of Rice 28

Yes, why have I not commented on the rice export ban?

Well maybe the right word is fed up. I'm fed up with the statements from Menteri Pertanian, HKTI people, people hijacking farmers' name, economic observers who claim to know price mechanism but clearly reveal otherwise, Prabowo's campaign on TV, and so on and so on.

Don't tell me you love farmers, dudes. Because that's bullshit.

Vulgar Indonesianism

Some stupid and funny words I noted recently:

• Vulgar and useless adaptation of foreign (English) words: 'kontestasi' (funny because it is supposed to mean 'competition' and stupid because Bahasa Indonesia already has a good word to mean just the same: 'persaingan').
• Same as 'koinsidensi'  (Bahasa Indonesia has a better 'kebetulan' -- maybe because 'koinsidensi' sounds more English, as in coincidence?)
• Or 'distingsi' (for 'distinction', while we have 'perbedaan')
  

I'm sure there are more out there. I know, I myself am not good when writing in Bahasa Indonesia. But at least, I don't adopt foreign words just because I'm lazy to find the right words. And even if I do adopt them, it is not because I just want to sound cool.

Diskusi Ekonomi discusses again

Just in case some thought Diskusi Ekonomi has died, no, it has not. Rizal just posted one of his pieces that was ignored by Kompas. Others (yes, more guest bloggers will participate) will resume posting there shortly. Sorry for the long absence.

Report and learn and report

We love this type of journalist. Who, when wrong, admits and qualifies. A rarity.

HT: Greg Mankiw.

New working paper

Zooming Out Indonesia's Supply Constraints

M. Chatib Basri, Arianto A. Patunru, Masyita Chrystallin
University of Indonesia, 2008

The paper argues that Indonesia's main problem that impedes its economic growth (and lackluster performance of export) lies on the supply side rather than the demand side. That is, in the aftermath of the economic crisis, the aggregate supply has become less responsive. This problem is traced back to problems of exchange rate appreciation, high cost economy (esp. bribery and logistic costs), and the change of investment pattern. To help ensure a sustainable economic growth, therefore Indonesia needs to resolve the problem of supply constraints which itself is closely related to the issue of investment climate. The paper, however, is careful not to over-emphasize the role of investment climate in explaining the performance of Indonesian industries. It summarizes the recent discussions of investment climate given such qualification and elaborate on its most important factors, namely regulatory framework, governance, and infrastructure. In doing so, it also gives an assessment to the ongoing regulatory and policy reforms with a highlight on the policy areas where improvements are needed the most. The paper ends with a discussion on the 'dilemma of reform': reforming the bureaucracy is pivotal, but at the same time it is likely to be much more difficult than reforming the policy, because the former will encounter strong political challenges from various interests and groups; its benefits come later while the costs are immediate; and there is always a lag of time between implementation and results. The paper suggests that in countries as complex as Indonesia, reform in a 'piece-meal' approach focusing on the most binding constraints is more sensible than a 'wholesale reform'.

Dentists call

Reported in The Jakarta Post today, Indonesian Dentists Association complained that Indonesian people only go see a dentist when they have toothache.

Of course. D'oh.

FB's take on BI's brouhaha

Faisal Basri's Kompas column today is interesting.

According to FB, the source of controversy is SBY's clear preference toward Agus Martowardoyo (AM) and hence Raden Pardede (RP) was just a "pelengkap penderita" (maybe "background dancer" is a good analogy). I think FB was right.

Next, FB said that ideally BI should just focus on monetary issues. Can't agree more.

FB also said BI governor should be eloquent in explaining economic dynamics to market agents in a laymen language. And he or she should be able to explain them himself/herself to DPR members. Implicitly according to FB, it would be weird if the governor always delegated hearing with DPR to his/her senior deputy. I don't quite understand this. What's the problem if such task is delegated? I agree that the governor should master the monetary and banking theories but that does not mean he or she should always entertain the DPR in person. That's why he/she has deputies.

As for the rest of the article, I'm not sure if I understand well enough. FB mentioned about "nilai-nilai" or values that the new governor should have. There was a notion about good, commendable "track record", strong personality, etc. Not really clear to me what that all means.

My bloghopping equilibrium

I have a long list of econ blogs in my Bloglines account. I can't possibly read them all everyday. But when I have the time I usually go in this order: Becker-Posner, Cafe Hayek, Marginal Revolution, EconLog, Env-Econ, Greg Mankiw, Dani Rodrik, Jim Hamilton, and Paul Krugman. Most of the time, I can only read them over the weekends (along with selected classic papers and while preparing my lecture notes for the coming week). Sometimes, I skip Krugman. Sometimes it is Krugman, Hamilton, and Rodrik. Becker-Posner is not as frequently updated as the others. So, many times I end up having coffee and the George Mason trio: CH, MR, and EL. That's probably my bloghopping equilibrium -- recently.

Of course Alfie can amend all that easily.

How a real researcher does stuff

Intrigued, curious, digging data (and that includes getting it from reputable sources), checking for correlation, questioning causality, drawing careful lessons, offering qualifications...

Tim Haab shows us what a real researcher would do to answer a question (or even a mere curiosity).

Note. I'm sure Tim Haab does not remember me. But I'm proud to have given a (yes, lousy) presentation in Kerry Smith's prestigious Camp Resources back in 2003. Tim was the chair of my session. A fun guy.

on BI governor

OK, I've been restraining myself for commenting on this issue. It's just too political, too cheap, and at the same time embarrassing. But I'll vent out what I recently had in mind, so I'll die in peace if the world ends next week.

First, we want a central bank governor who of course, unlike me and most economic commenters, knows monetary and banking theory. We don't want an agronomist or political scientist for that position. We don't require somebody with vast experience as a chief or head or director of some institute or organization or even a big bank. Experience does not matter much. Knowledge does.

Second, we want him/her to be unapproachable, anti-social, or in short: towering figure who doesn't speak much. We don't want him to appear giving statements every day in newspaper or television. That's a job for information minister, not a BI governor. Our governor should just appear rarely only to lead the market. He or she should the one who set people's expectation, not the other way around. He or she should say we want an inflation of X percent next year and the year after. And he/she will do anything to meet that, no matter what. If needed, he or she can forget about other macro stuff. Just set an inflation target and meet it. Don't play too much with credits for SMEs or things like that. They have ministers for that.

Third, we want a BI governor who can say NO -- to the President, MoF, or to DPR people.

I guess we don't have that person, after all. Damn.

The ugly face of the blatant self revelation

Following their refusal of Bank Indonesia governor nominees, DPR members issue funny statements. A particular one that is so "revealing" is this:

[A parliament member] says that the solidity [he seems to be meaning: the strong determination, boldness] of the refusing camp is an indication that this time, there has been no money politics involved... (my emphasis)

Assuming that Kompas quoted him right and that money politics is still the common euphemism for bribe, this can mean: 1) in all the previous time, bribery was at play, 2) when the House approves a government's proposal it is because there is money politics involved

Oh boy, you said it yourself!

Enlightening the people

An anonymous accused me for never "enlightening people or decision makers". I guess he was totally right. Because I think blogging at Cafe Salemba, Diskusi Ekonomi, and Exegesis do not count as "enlightening". In fact I do all that for a completely selfish motive: fun. I don't get paid for that, but I benefit from the comments and interaction with other people (not always in a nice way, I should add): to know what I thought I knew but I didn't. I don't care if it is enlightening or not.

Come to think of it, I'm now wondering: what is the best way to "enlighten people"? Here's what I could think of, based on what I have seen many people do:

• There are more people watching TV than reading newspapers. So get into that TV thing. Make your way to get invited into talk shows -- preferably those with some clowns in them or comedian host with pretty actress.
  
• If you don't like acting on TV, write op-eds in newspapers or magazines, preferably the populists ones. Write something that suits its editor's taste. Better yet, get a contract for regular column called "analysis" or something. Doesn't matter what you write in there (can be a total crap). But hey, the newspaper names it "analysis", so relax. People will adore you, journalists will ask your opinion.
  
• Give talks in as many seminars as possible, preferably those attended by guest celebrities. Doesn't matter if you are asked to talk about Indonesian Idol or inflation rate. Just don't forget one thing: never say you don't know when you are asked something. Mumble, if you like -- just don't stay silent.
  
• Make good friends with journalists -- especially the lazy ones. The professional ones would do cross-checking, fact-checking and all that -- you don't want them. The lazy ones will just print whatever you say -- or send via SMS.
• When interviewed by a radio station, mention the word "rakyat" as many as possible. Guaranteed, you'll be on air again soon.
• Do not blog. Blogging is stupid and does not get you anywhere: government officials don't read it, parliamentarians don't give a damn. So don't waste your time.
• But if you can't resist the temptation to blog, make sure you obediently link to a blog authority (usually the self-declared ones work quite well) so you can be famous through his or her endorsement (some sort of blogger of the year, maybe). Oh, don't blog with fake name or even worse, anonymously. You'll be called coward -- that's not good.
  

What else?...

Now let's see what I have done... Oh my god, nothing! I guess I'm just incapable or I'm a selfish little bastard... Or maybe a little bit of both.

Late lesson again

Finally people seem to realize the truth: we should cut the fuel subsidy. Yes, that means the price will increase. (Ironically, SBY and JK seem to be too afraid to push this through -- but that's another story).

One thing remains bothering. That is the whole useless debate about production and quantities. It's the price that matters! We have learned it the hard way with rice case: you all hated production data, but you refused to recognize price as the reliable indicator. Now you're doing it again with fuel. And god knows what's next.

Mixed feelings in Bangkok

Greetings from Bangkok. (No, I have nothing to do with Thaksin's come back today). But it is unpleasant to see a country where people are really divided like this.

Question: Can you love a corrupt leader if he spoils you?

Oh by the way, this is a best phrase I heard today: "democratic coup" -- is there such thing?

If it's really just a good leader, we're in trouble

What explains variations in investment climate at local levels? We presumed either subnational competition, interest group pressure, or leadership -- or combination of the two or three. As for leadership, we thought of three natures: rent-seeking (as opposed to developmental), inclusive (vs. exclusive), or planned (vs. unplanned). We are yet to get confirmation to all this -- but we're getting there.

But I'm wary. Evidence so far is skewed toward ... leadership. If it is finally proven so, that is discouraging. Even though Ari Perdana rightly said that such "non-standard" variable might explain regional performance, I am afraid we can't go very far as to offer any policy recommendation: because that means it's the person, after all, not the system that matters.

Here, too. Everywhere we go, we can hear praises for the mayor. But when asked if this situation can be sustainable, people don't seem to expect so. On the contrary, they are worried that once the great leader leaves, things can go back into the lousy system. As a matter of fact, one of us, von Luebke confirmed similar negative conclusion in his previous work.

What I'm working on now

To Squeeze Or Not To Squeeze: The Political Economy of Local Investment Climate
N. McCulloch, A.A. Patunru, C. von Luebke, S.B. Wardhani, 2008

Here's the hypothesis:

The stylized fact that lies behind this research is that there are areas which have follow traditional prescriptions for improving their "investment climate" but which have still seen rather poor levels of investment whilst there are others which have implemented rather distortionary policies but have built strong relationships between the government and the private sector which have been successful in stimulating investment and growth.  Thus we have a hypothesis that certain types of relationship between the private and public sectors are an important driver of investment, perhaps even more important than the specific standard policy prescriptions in the literature

This is part of this collaboration.

Will update you later.

....mart's charity

A text from my brother:

I shopped at <name of a mart> today. As displayed on the small screen at the cash register, I was supposed to pay Rp 16,675. But the cashier said "Rp 16,700, Pak". I protested and pointed on to the screen. She said, "Well, Rp 25 will go to charity, Sir". What was she thinking? That robbing someone's money for "charity" is okay? I was pissed.

Me too.

Den Haag and Amsterdam facts 3 weeks ago

Was in Den Haag and Amsterdam three weeks ago but did not have time to access internet (how silly does that sound?). So here's some interesting facts:

• There are more than 1,000 Indonesian restaurants in the Netherlands.
• There are more Indonesians in the Netherlands than in any other part of Europe.
• The jazz group from Den Haag that is going to perform in the coming Java Jazz consists of Indonesian talents.
• Che Guevara's capitalistic logos are everywhere. What were they thinking?
• Ajax costume for kid costs 75 euros -- damn it.
• There are Indonesian girls working in the red light district of Amsterdam -- or so they confessed.
  
• While you are in the Amsterdam's red light district, make sure you eat at the New King, that chinese food restaurant. Just prepare for standing in line for an hour or so.
• But if you want sate kambing, go to Pak Tompul's De Poentjak in Den Haag. Why don't we have that kind of sate kambing here?
• Lastly, if someone else if paying, order dover sole in ... shoot what is that place close to the harbor?
  

And roken is dodelijk!

Solo fact of the day

There was a local regulation in this city saying that no building is allowed to be higher than the Palace. That palace, by the way, is not tall at all. And it was part of past history. The new mayor canceled the regulation and he had to face strong opposition from a group of people claiming themselves as "budayawan" (literally could mean culture experts or simply those who care about cultural heritage). What about plane flying up in the sky, then?

And now three apartments building are being constructed.

Amazon.com and PT Pos Indonesia

We (that's me and Anna) have been loyal customers of Amazon.com. Someone today told us that we shouldn't pay anymore tax or whatever it is called imposed by PT Pos Indonesia on our packages. Is that correct?

Macroeconomics class started today

I will be teaching intermediate macroeconomics at undergraduate level and microeconomics at graduate level this semester. The macro class started today. Here is the plan for the semester:

Main texts: Romer's Advanced Macroeconomics (McGraw-Hill). I encourage students to review their Mankiw's Macroeconomics (Worth Publishers) and Dornbusch et al.'s Macroeconomics (McGraw-Hill). For those who still need clear, intuitive overview on the basic concepts, I suggest to have Moss' A Concise Guide to Macroeconomics (HBS Press). Finally, those who are interested in the current debates on modern macroeconomics, I recommend Snowdon and Vane's A Conversation with Leading Economists (Edward Elgar).

The class is divided into groups who will present their reading on the following topics: 0) Solow Growth Model, 1) Infinite-Horizon and Overlapping-Generations Models, 2) New Growth Theory, 3) Real Business Cycle Theory, 4) Keynesian Fluctuation Theories, 5) Micro Foundations of Incomplete Nominal Adjustment, 6) Consumption, 7) Investment, 8) Unemployment, 9) Inflation and Monetary Policy, and 10) Budget Deficits and Fiscal Policy. This structure borrows completely from Romer.

In due course we will discuss selected news and articles on the Indonesian macroeconomy.

For the students: I apologize in advance that I will have to use some Saturdays to make up for the lost Thursdays due to my fieldworks and the three national holidays. But let's enjoy the semester again, just like we did in the micro course last semester.

Cirque du Senayan

There was one time when President Abdurrahman Wahid called the parliament members a bunch of play group kids. It might still ring true today. I'm sick of how those house members treat government officials. I mean, come on. Yes, government officials are not the nicest persons themselves, and maybe some of them deserve harsh critiques. But geez, be a little respectful and professional. Read the media. The honorable parliamentarians were showing off their power to demand President Yudhoyono's presence before them, explaining the case of Bank Indonesia liquidity loan. There is nothing wrong with that request. But hold on. The President sent his cabinet members. And the house members went ballistic. What is then so wrong about that? After all, President and his staff is one unity. Do they, the house members, have their own Chief, Agung Laksono to present in every hearing, too?

Grow up.

Update: The Jakarta Post today's editorial calls the lawmakers childish. Who doesn't?

Against ASEAN monetary integration

It's simple. A) ASEAN has a principle of non-interference (on its members' internal affairs) while monetary integration requires a supranational monetary authority that yes, will interfere to the members' internal affairs. B) Even if ASEAN countries are willing to compromise on that principle, there is no Asian counterpart to the Bundesbank.

That is from Kenen and Meade. Here is their summary. Otherwise, buy the book.

Helping the poor

I second Arya Gaduh's postcript note that:

[I]t's about time Indonesian politicians start to think in a systematic way about policy support for the poor that minimizes the incentives to the broader economy. I think this can be done -- for all its faults, especially as a program designed and implemented in such a short time, the cash transfer program was relatively successful in achieving such an objective. It's high time that we think of such programs, especially given the expected global food price hikes.

While we're at it, I should mention that I agree with Becker's recommendation that

[T]here are far more effective ways to help poor nations of Africa and elsewhere speed up their rates of economic development and reduce the impact of malaria, Aids, and other devastating diseases. Probably the single most important step is to encourage much more market-friendly policies by African and other governments in poor countries. In addition, it would help to reduce, better still eliminate, tariffs by rich countries on the agricultural and other exports from developing countries, encourage more widespread use of DDT and mosquito netting in combating malaria (see my post on deaths from malaria on Sept. 24, 2006), and provide private and perhaps public subsidies to the development of new drugs that help fight diseases mainly found in poor countries.

Of course, next is to translate that into actions. For which, Dani Rodrik's superb new book may provide good insights.

The Politics of Soybean (7)

Ap's note in Cafe Salemba. Agreed.

Jane's new movie

Jane Lawalata was my high school friend. Knowing her, I'm not surprised she's now in movie business. Congratz, Jane!

Argumentum ad misericordiam

Have you noticed the media's fad lately? In the wake of increasing commodity prices they have been running anecdotal stories about individuals or households who, according to them, have been made miserable by the surging prices of commodities. Professional writers, commentators, and even academics follow suit. They don't even bother to check if the causality they like to believe holds true. Particular story like someone who committed suicide brings a lot of attention and sympathy. No less than a prolific writer paints the story on a canvass of misery. And people are touched. Then easily blame it on inflation.

So much for logic: this is what we call argumentum ad misericordiam.

As for me, I try not to be trapped in this kind of fallacy. As much as I sympathize with those who suffer from price dynamics, I keep asking myself: Was it really the price increase that caused the death? Was it not some other things, say, irrational spending behavior? How did we conclude that he killed himself because he could not afford some prices, a story we believed in? Can we trust those who claimed to be told firsthand by the victim before the suicide? If, all this were true, then why do some still survive? Why not many suicide cases? There were times when inflation was far more hurting, here and elsewhere in the world. Were they followed by higher number of suicide cases? If so, were they causally related? If poverty was the cause of suicides, why then richer Japanese kill themselves?

Oftentimes, people buy what they hear just because the story is about misery. And some other people really use it to get the others. To get them agree with what they are going to say next.

The Politics of Soybean (6)

Thanks to Ari Perdana and Arya Gaduh, we noted that the share of soybean in household consumption is less than 2 percent. It's true that soybean has strong links to other commodities. But this fact (the 2 percent role) should be taken as an indicator for not to exaggerate the problem (I too might have sounded otherwise). Arya Gaduh and Dede Basri are right, subsidy, if given, should be addressed in the form of food subsidy, not particular commodity (e.g. soybean commodity -- see my discussion with Arya, and also Dede's in Diskusi Ekonomi).

The Politics of Soybean (5)

This is ridiculous.

Bulog asks for a permanent role in soybean import. That would mean they want a monopoly just like in the case of rice. If that is granted, it would be a setback. Currently soybean importation is open to general importers (IU). The fact that only four dominate the import reflects reluctance in the part of smaller importers who could not operate in the scale economies. The domestic shortage has resulted in sky rocket price. If the government wants to curb it, it could ask Bulog to import. Let's not forget, Bulog belongs to the government. Such import might not be the best option for a private company given the current situation, but again, let's not forget, Bulog belongs to the government: it's their job to take that risk. Not to use the situation to ask for monopoly.

The Politics of Soybean (4)

I just had discussion with Dede Basri. I was informed that the big four dominance in the soybean import might be a reflection of natural monopoly (or natural oligopoly, if they do not collude in any form). The reason is because the soybean importation is open to general importer ("importir umum"/IU). That means, soybean import is not subject to quantity restriction. So if the big four enjoys a "privilege", it's very likely to be natural. That is, they are the only importers who can reduce costs so as to still reap the benefits of scale economies -- in the midst of increasing world prices. They should not be punished for that.

Having said that, I still think that more domestic quantity is needed to suppress the price. Dede agreed and we both believed that one way to do that is for the government to ask Bulog to do the additional importation then proceed with some sort of "raskin"-type of subsidy. Another way is to directly subsidize the staple food. The money can come from that allocated to subsidize fuel. This is necessary because the budget is constrained. The government (i.e . the President himself) needs to be very decisive in this case: switching from subsidizing fuel to subsidizing food (do not forget that we have another big problem with oil price increase). It should not be very hard. After all people eat food, not fuel (forgive my sarcasm -- but you get the idea). In addition, spending 200 trillion rupiahs for subsidizing food (or better yet importation via Bulog) is way more sensible than spending it for fuel and electricity (most of which goes to the richer anyway).

Of course, this is for temporary use only. Any kind of subsidy is.

Update: Dede enjoins from Diskusi Ekonomi (with contributing comments from Arya Gaduh, Sonny Mumbunan, and others).

The Politics of Soybean (3)

Bustanul Arifin offers his solution. For long run, do something on infrastructure, irrigation system (I agree) and "incentive system with macroeconomic support" (he's not clear on this, though). For short run, he mentions the availability of factors of production: fertilizers, pesticides, etc. I think all that is not a short run solution. Production is long run or at least medium term perspective, given the current situation. Based on my limited readings (here and also in a book "Ekonomi Kedelai di Indonesia" edited by Amang, Sawit, and Rachman 1996 and published by IPB Press), the cycle for soybean ranges from 3 to 5 months for maturity (assuming a stable warm weather). I stick with my suggestion: allow for more parties to do import, rather than just the privileged four. The removal of the 10 percent import duty was justified as a means to "tease" the comfort zone enjoyed by the big four (Cargill, Gunung Sewu, Teluk Intan, and Liong Seng). Next, expose them to more competition.

On economic freedom, competition and the role of government

Note: I'm cleaning up the files in my laptop. Found some old articles I wrote. I'll put some in this blog, whenever I have the time. The one below was written for a discussion on economic freedom in an event in Bangkok last year. A related, longer version was included in a volume published by Economic Freedom Network Asia.

On Economic Freedom
Arianto A. Patunru

On the first day of 2007, local newspapers in Indonesia brought a bad news, breaking the Happy New Year celebrations across the country. They ran a headline about a Boeing 737 jetliner that never reached its destination. With it, one hundred people were missing. After two weeks of searching with no avail, families started to loose hope. What they were left with was prayer, to at least see the bodies of their loved ones. Especially when later one fisherman found part of the plane’s tail floating in the Makassar Strait close to the western coast of Sulawesi island.

Winds and storms aside, many people started to blame the accident on competition. Some fifteen years ago Indonesia’s domestic flights meant expensive tickets. Most people traveling across islands in the archipelago opted for sea transportation as they could not afford flying with air planes. Today, nearly everybody can get cheap air ticket. It is so cheap, sea vessels’ customers are shifting from people to big-size containers. Even long distance in-land buses are competing with airlines.

In the wake of the missing air plane, grieves led many to reflect, albeit with misunderstanding, on how they had been enjoying cheap tickets. Thanks to liberalization in the Indonesian airline industry, private airlines started to mushroom. Next was a race to providing the least expensive tickets to win a sizable market share. The carriers, they cut on meals, they printed tickets online, and so forth. But apparently some went even further. Realizing the fact that the safety standards enforcement was rather lame, they started to get loose on safety. Why not use old fleets? Why bother with regular maintenance? Why hire the most qualified pilots? In short, cheap air tickets were made possible not only by some cut on decent meals or some boost in fly frequency, but also by less safety. Enter the premature accusation: competition has caused this entire race to the cheapest tickets. With that, safety is sacrificed. And all they get is accident. (They do not even bother to look at the ratio of accidents over the fly frequency. It is likely that the ratio gets smaller, given the far busiest air traffic today then ten years ago). In conclusion, competition is evil. Better get the government to fly us, because private simply can not do.

Accidents are saddening. But so is the misunderstanding. It mixes up competition issue and the issue of law enforcement. In the story above, it puts blame on the liberalization of airline industry instead of on the government alleged failure to enforce safety standards regulation. While the two are closely related, they lead to very different policy implications. Solving the competition issue might lead to giving airline business back to the government. Tackling the law enforcement issue will lead to stricter monitoring of how the business is run. True, if effective, both will possibly result in more expensive air ticket, but the causes are different: in the first case it is because the private airlines are no longer able to cut the costs by risking on safety; while in the second case it is due to the monopoly power of the government. History has taught us, the latter case might increase the price higher than the former. Nonetheless the second case is more attractive. Who denies that curbing competition is easier than monitoring it?

Maximizing profits is a form of economic freedom. Given opportunities to raise revenues or to cut costs (or both), a firm would be stupid not to use them. Ethics aside, this includes an opportunity to play around rules, should there be a room. In the absence of competition, the incentive to find all opportunities to maximize profits is rare. Rather, it is the monopolistic power that is used to do the task. But (non-natural) monopoly denies the freedom of others to engage in business. Worse yet, it denies the freedom of consumers to access more choices and lower prices. Competition therefore has a lot to do with freedom.

However, freedom does not mean anarchy. They are starkly different. The former requires rules of the game, the latter not. This is where people tend to mix things up, as illustrated above. When problem arises, is it a problem of competition i.e. freedom or is it a problem of law enforcement? You can not really put and enforce standards on ethics, but you can put and enforce standards on safety. This is why and where we need the government. That is, to make sure that rules are in order. Alas, many times inability to enforce rules leads the government to do other things, including running the business itself and/or curbing competition. Authority to guard rules also brings another problem: the incentive to over-regulate. Sometime governments establish rules only as a vehicle to abuse their power. Another time, they simply put (good) rules in a wrong place. Requiring seat belt in cars and setting age standard for air carriers might sound similar as far as policy objectives are considered. But they are different: you can see if the car you are about to get in has a seat belt attached or not. But you can not know the condition of the air plane you are about to board in. In the former case, there is no need for the government to step in, but in the second case, there is: to make sure that the plane is safe for you and other passengers. In the first case both you and the car owner/seller know that the car is seat-belt-less. Here the market can work well, as indicated by the resulting price. In the second case, the information is asymmetric. The airline knows exactly how old its plane is; you, most likely, do not. The government helps to ensure that the information reaches you, so the market can work as properly.

The Politics of Soybean (2)

This is a text message I sent to a friend in Kompas. "You guys are hilarious. When rice price increases you say it's good for farmers. But when the price of soybean increases, you say it's bad." I should have added, "... And equally amazing, in both cases you call for banning imports". This should also be addressed to observers and commentators who fill the media with their misleading fallacies.

Read Kompas' Fokus today (19/1). You know what and whom I mean.

The Politics of Soybean (1)

I'm no expert in soybean economics. I follow rice dynamics more diligently than that of soybean. The only research I have done regarding soybean is one in which we (Patunru, Trialdi and Havidz, 2005) looked closely into its price transmission across production and consumption centers (provincial levels with East Java being the reference market). The study found that prices across main provinces were in general weakly integrated, and some were not integrated at all in the long run. The study concluded that soybean price transmission (at least in 1993 to 2003) was constrained. In other words, the market was less than efficient.The possible causes of this were 1) weak marketing institutions, 2) poor infrastructure (esp. that to support distribution), and 3) inability of local farmers to match the international price. The latter came with qualification as the transmission from international to domestic price was also far from perfect.

Recently, there has been a big fuss over the increase of soybean price.

Kompas ran a couple of articles and op-eds. The tone, as you would have predicted, was of course to blame it on the government and liberalization. The observers cited there were both confused and confusing. Take this article for example. A parliamentarian reportedly said that the removal of import duty was absurd, because it "would not have any effect on price and the current shortage of soybean". He called it an "empty policy". But later in the article he was quoted as suggesting that the government should create incentive in the form of "high tariff when price is low and low or no tariff when price is high". That is exactly what the government just did (assuming of course that the "tariff" and "price" written by Kompas journalist mean import duty and world price, respectively).

The President, on the other hand, said that tempeh and tofu (both use soybeans as key ingredient) makers needed to adapt to the increased price. Sure. But then he went on with "the government will look for cheaper imports". His work would be much easier if he let the private sectors do the job. In fact, importation has been exclusive for only four big companies. Removing import duty might not be very efficient if the limited number of importers could collude to fix the price. The notion as said by one source that the "price crisis" is a result of "too much import" is foolish. The more you import the larger the quantity in the domestic market and the pressure to price is to take it down -- the magnitude of which depends on other things, e.g. distribution. The study on price transmission suggested that distribution is problematic, too.

So what's to do? In the short run, more, not less, import should be allowed. In the longer run, distribution and production problems are to be tackled. That includes improvement of road infrastructure and irrigation, as well as technology that leads to better varieties and farm management.

RIP: Pak Sadli

One of Indonesian most important economists passed away last night (Jan 8, 2008; 23:15). Good bye, Pak Sadli. Thank you for your great contribution.

The Politics of Rice 27

Read Kompas today. The headline of business and finance section reads "Beware of 2008 Rice Production". It reports about more than 50 thousands hectares rice plantation damaged by flood during October-December 2007 alone. That is indeed worrying. Oddly enough, Kompas does not mention at all about import. Instead it cites a statement from a farmers' association head who calls for government clear take both for short- and long term policies. However, the article (and the association's statement) is all about longer term policy, i.e. increase in the level of productivity. They shy away from admitting that importing rice would be the only feasible short term solution. (Another thing is again Kompas laziness to cross check their information with facts. The reporter mixes up the potential of dry and wet periods in 2008. He then carelessly attributes dry period to La Niña, not El Niño).

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.

Anti-Ahmadiyah

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.

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".

Privatizing Merpati

The government is planning to privatize Merpati. Great.

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.

Country	HDI Rank in the World	SEA Games Gold Medals as of Dec 13, 2007
Singapore	25	38
Brunei Darussalam	30	1
Malaysia	63	45
Thailand	78	121
Philippines	90	34
Vietnam	105	59
Indonesia	107	38
Laos	130	4
Cambodia	131	2
Myanmar	132	1

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?

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.

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.

Abstract:

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.

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?

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.