Paper to read

Does Culture Matter?
by Raquel Fernandez - #16277 (EFG LE LS PE POL)

Abstract:

This paper reviews the literature on culture and economics, focusing primarily on the epidemiological approach. The epidemiological approach studies the variation in outcomes across different immigrant groups residing in the same country. Immigrants presumably differ in their cultures but share a common institutional and economic environment. This allows one to separate the effect of culture from
the original economic and institutional environment. This approach has been used to study a variety of issues, including female labor force participaiton, fertility, labor market regulation, redistribution, growth, and financial development among others.

http://papers.nber.org/papers/W16277

The Duck, The City, and The Chairman

The Duck, The City, and The Chairman

Posted in Facebook by Arianto A. Patunru on Sunday, October 25, 2009 at 5:11pm

“What’s up, Mister Chairman? Long time no see!”
“Ni-ho-ma? How’re you doing?”
“Great, Chairman. Just finished with a conference on…”
“Crisis? I bet you did! Seriously, don’t you people have anything else to do? This crisis is peanuts! It’s a small, tiny hiccup for China!”
“I reckoned that, Sir. I can’t believe you rebounded that quickly! Approaching two digits again next year? Impressive!”
“That’s okay. Singapore would impress you, too. And look at your own country; it’s also doing very well. So what crisis are you guys talking about? C’mon, we’ve seen harder times, have we not? Don’t be sissy…”
“Yes, Sir…”
“So now, how do you like your visit?”
“Well, it’s fantastic! I didn’t get the chance to see the Great Wall, nor could I go to the Forbidden City – conference was tight. But I sneaked out to Tiananmen Square and …”
“Ah, those stuff. Standard! You can visit them anytime. They’re eternal. But how about food? Now, that is important…”
“Sure thing, Chairman. This great conference organizer took us to Duck King…”
“Wait! Did you just say Duck King? The one in Beijing? The original, authentic, first-timer Duck King? No kidding!”
“You heard me, Chairman. Duck King. The original Peking Duck, Beijing’s most precious gift to the entire civilization!”
“Ah, that is an understatement, my friend. We believe God has created only ten sets of masterpiece in the history of universe. Two of them are Peking ducks and Chinese cooks. They are so good I don’t really care about the remaining eight…”
“Well, that sounds a bit of an exaggeration, Sir. But I won’t argue you on that. As a matter of fact, we have this best restaurant in Jakarta serving Peking duck. Now I feel like I have been cheated the entire time. Why can’t they make it like this here?”
“Hahaha… that’s true. We can make iPhones better than Americans and send them out to the world. We make Lenovos, send them out. We even created the ugly looking Crocs and made you East Asians love ‘em. But listen, dude. You want Pecking duck, you come eat it here. Right in Beijing! Because Beijing, the duck, and the cook are one package, my friend! They’re perfect complements as you economists would call ‘em”
“I guess you’re right, Mr. Mao”
…
“Now what else have you seen?”
“Oh, I have this friend from newspaper. She took us to … let me remember the name … ah, Shichahai! It’s a really cool place, they have…”
“Oh, that! Of course. I love that place too. Where else can you relax, sipping Chinese tea, and listening to Santana? And they’ve got Starbucks, too, you noticed?”
“Yup. Your country is so globalized…”
“Excuse me? Watch your words, young man. You are in the most capitalistic country in the world! Did I say we invented … well, we made iPhone? Do you know we have our own state in US called Walmart? And by the way, that Blackberry you Indonesians are so crazy about? Man, that thing’s ridiculously expensive! Them Canadians are ripping you off. What are they, bloodsuckers? Just be patient, we’ll make it cheaper very soon!”
“Err, I’m sure you will, Sir”
“Trust me. We’re the most efficient neoliberal in the world”
“You think so?”
“Hell yes! Not only that. We have produced all market icons fancied even by them socialist street activists. Did you see those t-shirts with my picture or Che’s on them? They’re bestsellers! Everybody from London to Buenos Aires, from Jakarta to Caracas buy them. Hail capitalism! Now you tell this to Chavez or that guy Morales”
“I’ll do. And ugh, speaking about t-shirt, I saw one with your trade mark logo – except that they replaced your face with Obama’s…”
“Hahaha! Is that right? Well, I don’t mind. I like this dude Obama. I heard he just won an, what, Oscar?”
“No, it’s the Nobel, Sir”
“Whatever. But see? This guy, I knew he’s got talent. Unlike Bush…”
“Alrite, Chairman. I think I should be boarding now”
“OK. Have a safe flight. Say hi to Soesilo”
“Bye”
“Cai jian!” 

Phantomizing Keynes

Phantomizing Keynes

Posted in Facebook by Arianto A. Patunru on Saturday, May 2, 2009 at 1:26pm

17:00 - 18:30

"Maynard, very nice to meet you"
"Same here. What brings you to London?"
"Some conference. How's life?"
"You mean death? Either way I'm good. What conference are you having?"
"Was. Finished yesterday, that's why I'm here now. It was some kind of reassessment of orthodox and heterodox approaches to investment and growth. Great debate there"
"Ah, that. Boring"
"We talked about you a bit"
"That's not surprising. But rather unfortunate. People remember me only when the economy is in crisis"
"Oh don't be too sentimental, Maynard. Take it as a complement: yes there's a lack of demand and yes monetary policy is rather impotent. A vindication to partof your General Theory, I suppose"
"You have problem with my book?"
"Yes, I do, a bit. Wanna discuss this now?"
"Of course not. We're sipping coffee in Trafalgar Square and you want to talk about liquidity trap? No way"
"Right, Maynard. Let's talk about something more fun then. What are you up to?"
"I'm setting up a school. Call it 'I-Told-You-So-School-of-Economics'. Wanna join?"
"Sounds fun"
"Indeed. I'm hiring Krugman as the department head"
"Not Stiglitz?"
"No, I don't really like that guy"
"And what do you do apart from economics?"
"I'm writing a book about my wife Lydia. Just started it. Hey, what about you. What have you been doing. Apart from economics, I suppose"
"I'm rereading Dostoevsky's Notes from Underground and I just finished Gordimer's Beethoven was One Sixteenth Black"
"Great picks. Underground is different from Dostoevsky's other works. You know me, I like everything different. That's actually the strength of my works: different from mainstream"
"I see..."
"But I haven't read Nadine Gordimer. Is she good? Tell me about thisBeethoven..."
"Sure. Here goes..."

***

18:30 - 19.15

"It's getting colder. What's your plan?"
"Nothing in particular. I'm thinking of some play, Maynard. Any suggestion?"
"Play. Good idea. Anything you fancy?"
"Well I guess I'll go see Phantom of the Opera again. What about you? I heard Ian McKellen is playing Waiting for Godot"
"Yeah, but I've seen it. I'll go see Billy Elliot. Elton John does the scores"
"Now that I have seen twice. So I guess we'll go separate ways?"
"Yes. Shall we meet again afterward?"
"Yes, let's say 23:00?"
"OK. Let's do this. Since Billy is shorter than Phantom and the theater is two stations away from here, I'll come back again to this place..."
"Great. Let's meet up in front of Her Majesty's theater"
"OK, enjoy"
"You too, Maynard"

***

23:00 - 23:15

"Sorry for waiting"
"No, you're alright. Just got here. How's the play?"
"Terrific. How's Billy?"
"Not bad at all. Better than the movie. Tell me about Phantom. Who played Christine?"
"Gina Beck"
"Is she good?"
"Very good. She's amazing"
"Really? Better than Sarah Brightman?"
"Better than Sarah Brightman"
"Glad you enjoyed it. Hey let's go to this new cafe over at Piccadilly. I heard it's great"

***

23:15 - 02:05

"Alright. I'm tired. You're staying in London?"
"No, I'm going back to Brighton. Will fly back to Jakarta tomorrow"
"I'll see. OK then. I'm going back to Bloomsbury. Nice meeting you"
"Same here, Maynard. Keep in contact"

AP to PLN, eh?

So the embarassing blackouts in CGK is solved: the government orders PLN to takeover the power management in CGK from Angkasa Pura.

As if PLN is good.

On redenomination

We've got too many zeros on our currency vis-a-vis US dollar. Getting rid of some of them wouldn't hurt. In fact it simplifies our life.

This thought has been around for awhile. The recent brouhaha was just another example of government's bad PR.

2010H2

Growth data for second quarter is out. It's 6.2% yoy. With 5.7% in Q1, the growth of H1 is therefore 5.9%. GOI's target for 2010 ia 5.8% (BI's is 6.0%). Most likely, it's the latter that holds, if not surpassed.

Inflation in June and July has been higher than expected. As August/Sept will observe fasting month and eid days festivities, yearly inflation might also hit the upper bound (set at 6% by BI), hence a need for some tightening up.

As for employment, GOI expects unemployment to drop to 7.6%. With a growth target of 5.8%, that implies an assumption of 400,000 absorbtion per 1% growth. I guess we're not there yet.

Assignment for the upcoming semester

S1: Introduction to Microeconomics, co-teach with M. Pangestu (Main text: Mankiw)

S3: Advance Microeconomics (Main text: Mas-Colell)

New paper in BIES

Survey of Recent Developments

Bulletin of Indonesian Economic Studies 46(1):7-31, 2010

Arianto A. Patunru (University of Indonesia)

Christian von Luebke (Stanford University)

Abstract

Recent political developments are slowing reforms. The Corruption Eradication Commission (KPK) and the finance ministry find themselves entrapped in legal inquiries and political wrangling that seem intended to weaken their reforming zeal. KPK's effectiveness has been undermined by legislative changes and the arrests of three of its commissioners. Meanwhile, the costly bail-out of a small bank has provided an opportunity for attacks on leading reformers - Vice President Boediono and the Minister of Finance, Sri Mulyani Indrawati. The president's diffident stance in both instances has played into the hands of the opposition and, although key reformers are likely to remain in office, the political imbroglio has nonetheless eroded confidence in the government. 

Year-on-year GDP growth recovered strongly to 5.4% in the fourth quarter of 2009. Government spending has been the key driver, while household spending slowed and investment remained low. Both exports and imports have returned to modest growth. Although 2009 ended with low inflation, Bank Indonesia (BI) has set its target inflation rate for 2010 at double the rate it achieved in November. BI is likely to bow to populist demands to lower nominal interest rates rather than raising them somewhat to prevent inflation accelerating, even though its real policy rate has been consistent with significant acceleration of GDP growth. The 2009 budget outcomes confirm that the fiscal stimulus in response to the global financial crisis has been less than hoped for. As for 2010, high world oil prices will imply huge subsidies, given that the government is unwilling to increase domestic fuel and electricity prices commensurately. 

The president announced that virtually all the government's 'first 100 days' program targets have been met. However, half of the 'action plans' amounted to nothing more than issuing or announcing new regulations, plans, blueprints, guidelines, recommendations or policies, or simply preparing drafts of these. No real progress has been made in relation to the most urgent reforms, particularly on energy subsidies and labour market regulation. Realising that the whole population would benefit in net terms, the previous government signed the ASEAN-China Free Trade Agreement (ACFTA) in November 2004. But just when the agreement was to take effect, strong resistance from business and parliamentarians emerged, leading to the government's decision to re-negotiate many tariffs with China. This is disappointing: failing to uphold its commitments under this long-standing agreement makes Indonesia appear unreliable as an economic partner.

Upcoming gig: Asian Economic Panel

Seoul, Korea next week:

...

3:30 - 5:00 pm

Yung Chul Park, Korea Univ., "RMB Internationalization: Its implications for 
Financial and Monetary Cooperation in East Asia"

 

Discussant
- Arianto A. Patunru, Univ. of Indonesia

- Georges de Menil, Paris School of Economics

- Vu Quoc Huy, Institute of Economics/National Economics Univ.

Details here.

Broken cartel -- don't tell us you're surprised

It is growingly clear that the political coalition of parties surrounding SBY is breaking up. The parties involved deny. The president asks the members to respect political ethics. And the usual story goes on.

Surprise?

Some quotes from Time (Bernanke's US Issue) that might as well be explaining Indonesia (ie, SMI-Boediono's rescue act and the noise that follows NOW)

"History is composed not only of what happened but of what didn't happen. The latter, of course, is impossible to really know" (Stengel, "To Our Readers")

"What we don't know is what the economy and our lives would look like if a few individuals had not acted on our behalf and had simply sat on their hands" (Stengel, "To Our Readers")

"Bank runs are even scarier now that they don't require an actual run on an actual bank. Billins of dollars can be withdrawn with a keystroke, and all sorts of nonbank players ar now dangerously intertwined with financial markets" (Grunwald, "Ben Bernanke")

"Now that the fire is out, it's easy to attack the firefighters for getting the furniture wet or holding their hoses improperly" (Grunwald, "Ben Bernanke")

"This wasn't a war of choice. It was a war of necessity" (Grunwald, quoting Tim Geithner, "Ben Bernanke")

"Bernanke has become a political victim of his apolitical success... It's now up to our dysfunctional political system to let him do his job -- and to fix the financial system so that he never has to save the world again" (Grunwald, "Ben Bernanke")

It's expectation, really

Alright if you insist Bank Century is small, it is small. If you therefore conclude such a small bank could not bring other banks down with it, then we should discuss about another concept: systemic risk.

For wonkish, go google Diamond-Dybvig model.

But let's make it easier. Some people seem to think "systemic risk" here means the bank is related to other banks and therefore can affect the latter in a contagious process. Maybe I'm wrong, but Burhanuddin Abdullah and Anwar Nasution seemed to use this concept in their hearing with DPR's Pansus. According to their logic, since BC is small, it couldn't have systemic risk whatsover.

Some others believe it is expectation that really matters. (I got that impression from for example Boediono's and Miranda Goeltom's responses to questions from DPR's Pansus). As a depositor in Bank A, you, a risk-averse person (and by the way, that's a fair generalization), would feel anxious when you see people run Bank B across the street. No matter how small Bank B is and no matter how unrelated Bank A and Bank B is. The only connection between the two banks is what we call human expectation, driven by the act of observing something that you then expect might happen to you, too. Your reaction can vary. If, by any chance, you have the information that general situation is manageable (eg there hasn't been any news about world struck by crisis or something; or any other relevant information), you might not withdraw your money from Bank A. Yet. But, in many cases, you can't have full information on whether or not the situation is "manageable". It can take only a couple of depositors loudly saying "Gee, that bank is falling! This bank is next, I'm gonna withdraw!". Before you know it, Bank A is rushed, too. Then Bank C, D, so forth. It is therefore "systemic". This latter situation is sometimes affected by your perception on the authority, in this case Bank Indonesia and MOF. When you know (or are told) that BI and MOF are short of liquidity and fiscal capacity to deal with a crisis, your incentive to quickly withdraw and save your money at home rather than bank increases. In other time, you think BI and MOF can handle the situation well (even if Bank B is rushed, their depositors are saved, etc), in which case, your incentive to withdraw is relatively small.

So, it's about expectation. I'm more persuaded by this second understanding about the word "systemic risk".

Dahlan Iskan as new PLN Chief

The government has just inaugurated Dahlan Iskan as the new chief of PLN. He was the man behind the success of Jawa Pos, a media group. Beyond that, I don't know much about him. I just learned from today's news that he has served as president director of two independent power producers in East Kalimantan and Surabaya (The Jakarta Post, 24/12).

But I fully agree with State Minister for SOEs Mustafa Abubakar's remark: "The leader doesn't need just a technical capacity. It requires also leadership and good management capacity".

Trade war with China

This growing tension against China in the midst of ASEAN-China FTA should also look at some facts. Indonesia's import from China has grown from 2.4% in 1985 to 7.2% in 2006 (as shares of total import). The corresponding figures of export are 0.5% and 9.8%. Contrast this with our trade with Japan, US (let's make it North America), and EU15. Our import from Japan was 25.8% in 1985 and down to 14.2% in 2006; while export down from 46.2% to 37.3%. Import from US was down from 18.7% to 16.6% and export to them was down from 22% to 18.9%. Finally, import from EU15 went down from 19% to 8.3% while export increased from 6.4% to 18%.

So de facto, we have had an increasing trade with China. Not just import, but also export.

Award for Sorry Thief

I don't have problem with those NGOs giving an award to Prita for she has become the symbol of consumers' right against lousy business.

But I can't understand why you should give an award to a petty thief. The legal system is weak, yes. Big thieves should be punished big time. But that doesn't mean you can just forgive small thieves. Because thief is thief, regardless of the scale of the theft.

A sympathy for an old woman who "were forced by situation to steal something almost worthless" might sound just. But giving her an award is I think just too much. You're sending a very wrong signal to the populace.

Avatar yes. Copenhagen whatever

What makes me more sympathetic to Mother Earth is Avatar the movie, not Copenhagen the wooshy wooshy.

Moral's immorality

On the call for suspension of VP and Minister of Finance by DPR's Inquiry Committe (and thus the President's refusal), Amien Rais and Din Syamsuddin are reportedly disappointed. They argue, even if the call is inconstitutional, it's "moral".

And disrespecting the law and constitution is moral, gentlemen?

Who's afraid of free trade?

Deputy Minister of Agriculture defends ASEAN-China Free Trade Agreement, saying that it will benefit Indonesia (BusinessNews, 16/12).
Agreed.

15 focuses is no focus

According to an official at the Coordinating Ministry for Economic Affairs, GOI has decided 15 sectors as the priority in infrastructure development within the next five years (Bisnis Indonesia, 17/9).

Fifteen?

More cushy cushion needed

The government declares they need an extra Rp 3 to 5 trillion emegency reserve in the 2010 budget to anticipate threatening world oil price. That would add to the currently allocated Rp 5.6 trillion.

As known, the state budget has assumed an oil price of USD 60 per barrel. Now the price stands around USD 70 already. And might even increase in the near future, considering the world economic recovery.

Now the budget also assumes that every USD 1 increase beyond the assumed USD 60 would add Rp 0.1 trillion to the deficit. Now, if Indonesian Crude Price (ICP) is USD 65 per barrel (usually it is USD 5 below the world oil price quoted in US market) then there is an increase of USD 5 trillion on top of the assumed price. According to the elasticity assumption, it should add Rp 0.5 trillion to the deficit. But, why ask Rp 3 to 5 trillion?

Stepping up the ladder

According to the IFC's Doing Business 2010, Indonesia is the most reformist country in East Asia and Pacific with regard to business regulation as observed in the latest IFC's survey. As a consequence, Indonesia's ranking is up to 122 from 129.

Congratulations.

The P in GDP stands for 'production', remember?

Joseph Stiglitz questions if statistics "are giving us the right signals" (Project Syndicate/Jakarta Post, 9/9). In the article that reads like advertisement of the chairman of the newly established Commission on the Measurement of Economic Performance and Social Progress, Stiglitz rightly says that GDP is not apt to reflect people well being.

Of course. It's just a measure of production. Yet, that's the best we have now -- for again, measuring production.

We already started "green GDP" here and there, taking account of natural resource depletion and environmental degradation. Despite the rough proxies used, it's a good way to remind us that the business-as-usual production might be harmful to the environment.

But many people push it even more to measure happiness (or in general, well-being). So far I'm skeptical. Production is measurable. So is green production. But happiness? It might be measurable on individual basis, or at least household. You might even come out with measures like aggregare willingness to pay to proxy demand for something (including intangible goods) at community level. But pushing it to grand scale like national GDP will encounter serious aggregation problem.

One of those happiness measures found that the most happy people live in Bhutan. I, for one, don't want to live in Bhutan.

Bye to monopoly, PLN

The Jakarta Post today (9/9) reports, "Legislature unplugs PLN's monopoly on electricity".

Great.

The mix feeling on Hatoyama's approach to the environment

The Japanese new premier Hatoyama is environmentally ambiguous. He promises rather progressive emission cut. But he will also cut gasoline tax. Worse yet, he will scrap toll way charges. Of course all this might change as he's not even sworn in yet.

Hopefully Japanese people's expectation for changes turns out good. Otherwise, it's just a regime change but with even more populist, short-sighted policies.

It's the magnitude, for crying outloud!

First, a disclaimer. Exegesis wanted to shy away from the Bank Century debacle, simply because we had no idea what went on, rightly or wrongly. But then the President took over that Privilege of Shyaway (The Jakarta Post, 3/9). He seems not to bother with this kind of issue, unlike those of Manohara or Prita.

So here's my take (figures and numbers aside). When a crisis struck, you deal with it with a non-normal treatment. Yes, you still need a system; but that system is only for emergency situation, hence a short term handling. When the situation is back to normal, you are also back to normal approach. You don't keep rebooting a computer when you only have a minor hiccup. When a bank is about to go astray, and with it it would take many others down, you're in a crisis situation. You need to make a quick decision. Calling all those House people for a late night consultation meeting is a waste of time.

But then you are using taxpayers money. No matter how urgent the situation is, you should keep remembering that it is not your money you're using to fight the fire. So make no mistake. Pour the water sufficiently, not overwhelmingly.

Now you're in difficult situation. Was it, the situation, systemic? Yes, no doubt. Were taxpayers money misappropriated? That one remains to be proven.

Of course it's the foreigners' fault

Kompas today runs an article on the first page titled "BI to be Watchful to Banks' Foreign Individual Owners" (BI agar Hati-hati kepada Pemilik Individu Asing, Kompas 3/9)). Knowing Kompas, I'm not surprised by its xenophobic tone. But I was curious who they quoted that statement from. So I read through. Twice. There are two quotes. And no one says so.

It is true that the two major shareholders of the failing Bank Century are Pakistanis with British nationalities. But jumping into a news article with astrong title leading to an impression that all foreign owners are bad guys is a journalistic folly. We still remember that more than ten years ago, when banks money were drained out, it was Indonesians who stole the money and ran away. But no news was titled "Be Careful with Indonesian Shareholders".

If we're efficient we might seem suspicious

A Bappenas official reportedly says that government spending on infrastructure this year could accomplish 90-95% of the allocated budget (Bisnis Indonesia, 2/9). That would be quite an achievement considering the previous records. But why not 100%? He says "It's tricky. Because people would think there is misappropriation involved".

Scratching your head? Me, too.

Upcoming gig: Asian Econ Panel Meeting

Asian Economic Panel Meeting
Keio University, Tokyo, September 6-7, 2009

The Global Financial Crisis?
Wing Thye Woo, Warwick McKibbin, Yonghyup Oh, Anwar Nasution

The Political Business Cycle in Japan and Instability of Budget Deficits
Naoyuki Yoshino, Tetsuro Mizoguchi, Renee Fry, Ryuhei Wakasugi

Taxing Pirates: Is It Worth It?
Desiree Desierto, Young Joon Park, Iris Claus

Unconventional Policies of Central Banks: Restoring Market Function
and Confidence
Kiyohiko Nishimura

Crisis Management: Difference between Japan and the USA
Yosuke Kawakami

Technology Development and Employment in China
Fredrik Sjoholm, Nannan Lundin, Changwen Zhao, Bhanupong Nidhiprabha, Wei Zhang

The Different Impacts of US and Japanese FDI on Trade Patterns
Kwong-Chiu Fung, Alan Siu, Arianto Patunru, Prema-chandra Athukorala

The Impacts of Globalization on Employment and Poverty Reduction in
India: The Case of Emerging Big Shopping Malls and Retailers
Kaliappa Kaliraja, Kanhaiya Singh, Shoko Negishi, Yuenpao Woo, Maria Bautista

How Integrated are the East Asia Economies: A Comparison of Integration Indices
Yuenpao Woo, Bo Chen, Chia Siow Yue, Fukunari Kimura, Harry Wu

Experimental Economic Approaches on Trade Negotiations
Han Kyoung Sung, Shigeyuki Abe, Alan Siu

Avoiding Another Subprime-Type Crisis in Financial Markets
Makoto Yano, Chalongphob Sussangkarn, Doo Yong Yang

My two courses this semester

Program: Undergraduate Economics
Course: Introductory Microeconomics (ECON 10100), aka "Pengantar Ekonomi 1 - PE1"
Instructors: Mari E. Pangestu and Arianto A. Patunru (TA: Rizky N. Siregar)
Classroom: A1-10, FEUI Depok, Mondays, 8-11am
Texts: Mankiw (Principles of Economics, 2008), Parkin (Economics, 2010)
Topics: concepts of economics, supply, demand, elasticity; basic consumer and producer theories, market structures, input markets, efficiency and public policy.

Program: Graduate Economics
Course: Advance Microeconomics (ECON 90103-3), aka "Ekonomi Mikro 3"
Instructor: Arianto A. Patunru (TA: Palupi)
Classroom: PLN-Room, Pascasarjana FEUI Depok, Wednesdays, 13-1530pm
Texts: Mas-Colell et al (Microeconomic Theory, 1995 plus a bunch of journal articles)
Topics: General Equilibrium and Welfare Economics

Office hours: Depok, Mondays before 1pm, Lecturers Room, Department of Economics, FEUI Depok.

Yes, it is sad that our domestic economy is disintegrated. (Mercantilist campaign continues, anyway)

In what seems to be its campaign against everything import, Kompas again runs a headline today with a bombastic lead and heroic tone urging the stop of food import (27/8). They even use (unjustly, to my impression) Faisal Basri's concern about disintegration of domestic economy as their ammunition to call for mercantilism. I've been in close contact with Faisal Basri lately and we both (and many others) are very concerned about the disconnection across regions in Indonesia. Bang Faisal many times illustrates this problem with the fact that it is far easier to go from Palangkaraya to Pontianak (two cities in Kalimantan) via Jakarta (in Java), than directly. In my papers, I put more emphasis on the fact that our logistic costs are one of the highest in the world (14%, cf eg Japanese's 4%). In addition, a study my colleagues and I did in 2008 on land transportation also concludes in the negative: we are very inefficient due to legal and illegal collections on the street, poor infrastructure, and difficult topography. Finally, our ports are lame and have little incentives to improve since under the current, existing system, one port management (Pelindo) who books a loss should not be worried as it will be subsidized by the other Pelindos (the new shipping law addresses this issue with improvement policy but it is yet to be in effect). Add to that the many hurdles in customs. All and all, the big archipelago is really not an integrated economy, it is merely a constellation of many islands and regions with stark differences in prices, and hence standard of living. What is the solution? As I argue here and elsewhere, it requires logistics reform which includes serious improvement (and repair) on infrastructure especially port and road. I was in Kupang last month with my research team. We saw one obsolete weight station whose capacity was only 10 tons. As a response to that, all big, seemingly overload trucks were not allowed to pass through the station -- they were asked to make a small detour around the station. Only smaller trucks are to be weighted. It's funny and saddening. In another occasion, our researcher who rode with a trucker in a nightshift observed how the truck driver threw a matchbox filled with a 10,000 rupiah bill to an empty inspection station. When asked why he did that despite there was no one asking for it, the driver simply said "it's a custom". Again, nonsensical and saddening. All this contributes to our high cost economy. And again, it calls for reform in the logistics.

But Kompas takes all this problem about disintegrated domestic economy as part of their argument to call for import bans. Yes, they cited Faisal Basri as saying that three months ago we should have imported sugar and now it seems too late because suppliers have increased the price. That is probably true. But then they are back to their whole anti-import campaign. This is misleading. It confuses between facts (say, of the crisis) and recipe for longer term economic development. We have been with this problem in logistics and transportation for a long, long time. It needs improvement regardless of the crisis. Yes, we were hit by crisis but happened to be more resilient partly because coincidentally our exposure to trade is relatively low. But the entire world can not step back to relying only on domestic economies. Because at the same time production network and trade-in-tasks are growing. We don't want to miss the train. Nobody wants. But hey those are two different things. The crisis needs a short-term solution, deviating from normal, longer term development (eg. stimulus). This chain of arguments that (a) A crisis hits us, (b) We're fine because we don't trade too much, (c) Therefore the best way to go is to suppress trade even more and to go domestic instead, (d) So, stop import (while export is okay), and (e) While we're going to autarky, we need to address the logistic and infrastructure issue -- is misleading. It mixes up short term problem and longer term solution.

And banning food import? Even if we were all mercantilists now, have we forgotten that our food import is merely USD 5 billion while our non-oil/gas export stand at more than USD 100 billion? Have we forgotten that we are a giant in the world CPO market?

Gold standard? Now? No way

Yesterday, as I was having sahoor, an academic cum cleric gave a talk on tv about sharia economy. He mentioned that one of the features of sharia economy is "gold or dinar standard". I'm not sure what he meant by putting gold and dinar side-by-side (maybe he thought now the dinar system is still fully gold-backed, and therefore the two are interchangeable).

A couple of days ago I participated in a seminar held by MOF. At lunch, an official, out of blue, asked my opinion about that same idea, ie gold standard. My response was "I don't think we will ever go back to gold standard. That BI storage will not be able to house the entire gold backing the money in circulation".

Today, Paul Donovan of UBS Investment Bank gives a more sophisticated answer (The Jakarta Post, 25/8). Bottomline is the same: There is not enough gold in the world. Here's his reasoning. Assume that globalization is steady with global trade stays at 20% of the world's GDP. If the the world's nominal GDP grows at 6-6.5%, then the supply of reserve currency should also rise by 6-6.5% to keep the international trade intact. Now, if we are to go back to gold standard, trade growth will not stay at 20%, let alone expand: it will shrink, as the supply of gold rises at 1.5% growth rate.

Dare to stop import?

Misreading of the crisis aftermath (Indonesia has been quite resilient -- Indonesia's exposure to trade was quite low -- therefore, stop trading, go domestic) is getting pervasive. Kompas yesterday (24/8) ran couple of articles with anti-import tone. Today it continues, featuring Kadin chief in its headline (25/8). As quoted by Kompas, Hidayat says "If the government does not have the guts (to stop food import) and instead play blame gain among each other, we would not be self-sufficient in the next five years".

As I said repeatedly here, our conception of self-sufficent is false. We reached the so-called "rice-self sufficiency" briefly on the back of heavy protectionism.

Interesting paper of the week: Deaton on Aging, Religion, and Health

Aging, religion, and health
by Angus S. Deaton - #15271 (AG HC)

Abstract:

Durkheim's famous study of suicide is a precursor of a large contemporary literature that investigates the links between religion and health. The topic is particularly germane for the health of women and of the elderly, who are much more likely to be religious. In this paper, I use data from the Gallup World Poll to study the within and between country relationships between religiosity, age, and gender, as well as the effects of religiosity on a range of health measures and health-related behaviors. The main contribution of the current study comes from the coverage and richness of the data, which allow me to use nationally representative samples to study the correlates of religion within and between more than 140 countries using more than 300,000 observations. It is almost universally true that the elderly and women are more religious, and I find evidence in favor of a genuine aging effect, not simply a cohort effect associated with secularization.As in previous studies, it is not clear why women are so much more religious than men. In most countries, religious people report better health; they say they have more energy, that their health is better, and that they experience less pain. Their social lives and personal behaviors are also healthier; they are more likely to be married, to have supportive friends, they are more likely to report being treated with respect, they have greater confidence in the healthcare and medical system and they are less likely to smoke.But these effects do not all hold in all countries, and they tend to be stronger for men than for women.

http://papers.nber.org/papers/W15271

On Local Tax Law

The newly approved Local Tax Law stipulates the following 5 taxes allowed for provincial governments: vehicle tax, vehicle title-transfer tax, vehicle fuel tax, surface water tax, and cigarette tax. As many as 11 taxes are allowed for district/city governments: hotel tax, entertainment tax, advertisement tax, street-light tax, non-metal mineral tax, parking tax, ground water tax, swallow-nest tax (!), building and property tax, land and building rights entitlement tax (for lack of better translation). The law also allows 30 kinds of 'retribution' (user charges), grouped into 3 types: general service retribution (eg marketplace services), business service retribution (eg terminal and auction place services), and specific licence retribution (eg route permits). Finally, there is a progressive tax on second or more vehicles (with a tariff from 2 to 10 percent).

The above is based on a column by Harry Aziz, Bisinis Indonesia, 24/8). The author was the head of special committee for the draft, from the House side. He mentions that the reasons for progressive tax on vehicles are: inelatic demand of vehicles (I wonder what hi numbers are), fairness principle, local competition principle. He also adds that the collected tax should be earmarked to local infrastructure development. A tall order indeed.

Donate, no. Sell, yes

A small article in Kompas (27/8) talks about Indonesian Red Cross' difficulty in supplying blood for the needy. They oftentime have deficit than surplus as "there is more demand than supply". Yearly demand for blood is 4.3 million packs, while supply only stand at 1.2 million on average.

So stop relying on donation. Start blood market.

Info: Courses and Office Hours

The new academic term starts next week. I am assigned to teach Introduction to Microeconomics (undergraduate, co-teaching with Dr. Mari Pangestu) and Advance Microeconomics (PhD program). Info for students, I will be in Depok every Wednesday (Pascasarjana, 1-3pm) and Monday (not every week, as I'll take turns with Bu Mari; Departemen Ekonomi, 8-11am).

Separating underwriters from brokers

The government via the stock market regulator (Bapepam) is going to revise the Capital Market Law. The revisions include separation of investment management units from underwriting and brokering functions (The Jakarta Post, 22/8).

Not surprisingly, most securities firms react negatively as majority of them mix the two functions. The president director of Trimegah Securities for example reportedly said that the policy would "put pressure on our efficiency programs". He said that Bapepam should instead focus on enforcing good corporate governance.

I think his argument is ill-founded. What the Bapepam is doing is exactly an effort to enforce good corporate governance.

Monitoring sermons except those by...

The Jakarta Post reported that police would monitor provocative sermons given in mosques and mass gatherings (JP, 22/8). It is to avoid provocative and misleading preaches by clerics that can motivate violence and terrorism.

OK, what have they done to Ba'ashir? Was Ba'ashir's commending the bombers not provocative enough?

Are we going back to financial repression?

As if the strange deposit rate-cap policy isn't enough, Tony Prasetiantono calls for cut on profit margin (Kompas, 22/8). According to him, the agreement (to force deposit rate down to 8 percent and gradually closer to BI rate) will not be enough, because it only "affects the cost of fund". Sounds as if cost is not part of profit calculation, eh?

Add? For what?

So the World Bank urges GoI to increase budget allocation for infrastructure (Bisnis Indonesia, 21/8). Good. If only there is no problem in procurement and disbursement. Alas, everybody knows, GoI has not been capable in efficient handling of money. Even for the stimulus intended for infrastructure project (yes, stimulus for infrastructure -- funny), by end of July they could only spend less than 10 percent of it.

Force it down, eh?

As reported in Kompas (21/8), banks (mainly state-owned) agreed to cut deposit interest rates gradually to get closer to the BI rate. They think this will help "normalize" the movement of deposit and credit interest rates. I'm skeptical. First, as a depositor, one would seek for the highest real rate. If local banks set it low, she would transfer her money to some bank abroad, or convert it to other form of asset. Second, any agreement like this (between banks, in a moral suasion sort of way) is deemed to fail. One or two banks will eventually cheat and the rest will follow. Third, they miss the point. Banks' rates deviate from BI rate not because they just want to be different. It's because they still perceive a sizable risk. Attacking the rates is missing the culprit as it is the risk that needs to be minimized, through a more efficient credit bureau for example. Lastly, if the banks and the government and Bank Indonesia think that this forced rate is good for banks in general, they will be disappointed. Thus far, market has been segmented such that big depositors go to big banks and get interest rate higher than BI rate. The smaller depositors go to smaller banks and are paid interest below BI rate. Forcing big banks' interest down will attract the upper level of smaller depositors and therefore hurt the smaller banks.

Kudos to Pelindo I

I have been criticizing the management and system of the state-owned Indonesian Port Corporation (Pelindo), esp. on their cross-subsidization scheme. That is, if one Pelindo (we have four) books a loss, the others should subsidize it. This system creates no incentive to self-improve.

So, the news in the Jakarta Post (21/8) that Pelindo I has inked a joint commitment with private firms and local governments on a port development program is a good news.

SME prefers foreign banks

Kompas (20/8) reported that small and medium enterprises prefer foreign banks to local ones because of easiness in paperworks as well as lower interest rates.

Chair of Indonesian Young Enterpreneurs, Erwin Aksa, urged Bank Indonesia to be critical to this situation, or it will kill the local banks.

Typical.

On Ahmadinejad

So he's sworn in. I'm grateful my country is no Iran.

Less expansive? Good!

The 2010 state budget plan is considered less expansive by many, and some call it contractive. I take it as a sign that GoI will focus more on efficiency. That is, to reduce problems in budget preparation, approval process, procurement sluggishness. So it's a good thing.

@ SMERU

Was at SMERU Research Institute to wish all the best to Sudarno Sumarto for his sabbatical leave to Stanford; and to Asep Suryahadi for his new position as the new Head of SMERU.

Mas Darno, you'll be missed. Keep up the good work. Kang Asep, congratulations. Looking forward to working with you.

Bloghopping eq, moved again

Now it's Becker-Posner, Jim Hamilton, Cafe Hayek, EconLog, MargRev, Mankiw, Krugman, Env-Econ, and the new addition: Scott Sumner.

The best definition of inflation

"The rise in aggregate nominal income required to keep aggregate utility constant"

That is by Scott Sumner.

Congratz, Bang!

Congratulations to Darmin Nasution for his appointnment as Senior Deputy Governor of Bank Indonesia and the chairman of Indonesian Economists Association.

Bang Darmin was a former head of LPEM. We once taught a parallel course on Indonesian Economy (with Faisal Basri -- also a former head of LPEM) at the extension program of FEUI back in 1997. I love Bang Darmin's sense of humor. He's also very tough. Rumor around the office boys and janitors has it, Bang Darmin once challenged somebody for a fist fight over a parking lot in Salemba Campus. He won without the fight, needless to say.

Being Normal

SB Joedono, a former head of LPEM gave us his wisdom. "The most difficult thing to do is to become normal".

Thanks, Pak Billy.