'Sarapan Ekonomi,

Tax rush

2009-06-23T18:04:00.004+08:00

The number of taxpayers stood at 14.1 million in May, a jump from 10.6 million at the end of 2008, indicating an increasing awareness of people to pay tax, according to the tax office.

The tax office has provided incentive and disincentives to taxpayers in order to attract new taxpayers, tax office chief Darmin Nasution said Monday.

That's an increase of 33%!

Still, only one for every ten adult population is a registered taxpayer in Indonesia.

Neoliberalism, anyone?

2009-06-10T14:17:00.007+08:00

I do not really see the point of the debate over neoliberalism.

The critics seem to suggest that market liberalization, privatization and deregulation are evil. The proponents, on the other hand, if this subhuman species exists, glorify them as the miraculous policies that cure all the economic ills of the world.

The truth is, of course, as always, more complicated than this kind of caricatures. It is true that market liberalization, for example, may wreak havoc a market. But, done right, it can do wonders. Just look at what happen to airfares in the past decade; or, how easy you change your wireless phone provider just because you do not like the color of the recent poster of your current carrier.

I think it would be better if the presidential candidates’ economists stop this amateurish philosophical bickering. Instead, they should start talking about real problems that matter to real people, like how to help small coffee farmers help themselves, or how to expedite the process of setting up a firm.

I am not a political analyst; so, I do not know whether this move would win more votes. But, the last time I checked, most Indonesians are either small farmers or workers in informal sectors.

Their sheer numbers – these are, I think, reasons enough to talk to them.

Riding on the back of consumption

2009-06-06T13:48:00.006+08:00

I wonder why the IMF raises Indonesia's 2009 economic growth forecast from 2.5% to 3-4%.

So, I look at the latest BPS Press Release on Indonesia's economy, and find that the economy grows by 4.4% in the first quarter. Unsurprisingly, Government Expenditure has been growing by almost 20% during this election season, which helps boosting growth. But, Private Consumption is also going strong, expanding almost 6% in the first quarter.

Indonesia's Economic Growth (First Quarter 2009)

Despite the 24% fall in imports. Pretty impressive!

Six point one percent

2008-05-07T09:55:00.003+08:00

The economy grew at a lesser rate in the first quarter of 2008, compared to in last year's fourth quarter, on a slower growth in investment and consumption amid rising inflation and a global economic slowdown, Bank Indonesia (BI) said Monday.

In its quarterly assessment, BI estimated the economy had grown 6.1 percent in the first three months of 2008, lower than the government's estimate of between 6.2 and 6.3 percent.

A growth rate of 6.1 percent is pretty good, I would say.

Asian Rice Laws

2008-04-21T20:45:00.002+08:00

"[Asian] Rice laws and regulations are going in the wrong direction. It takes one back to the British Corn Laws," says [Steve] Hanke.

"These mandated the virtually complete government regulation of British agriculture at the start of the nineteenth century.

"Fortunately, that yoke was removed in 1846. Thanks to the efforts of Richard Cobden, John Bright and the Anti-Corn Law League, the Corn Laws were repealed.

"This resulted in the promotion of free trade, the importation of cheap food and a major surge in British standards of living.

"What rice needs today isn’t more government meddling but a modern version of the Anti-Corn Law League."

That's Steve Hanke of the University of Baltimore

The rise of rice price

2008-04-18T14:51:00.004+08:00

Last January, the price of rice future for December delivery was about $13. Today, it is more than $20. And, for next year delivery, the price of rice remains high.

^{Rough Rice Future (Yahoo! Finance on April 18, 2008)}

So, if rice traders' perception is any guide, it is going to be a bumpy ride ahead for the Indonesia's poor.

Indonesia in pictures: Porridge seller

2008-04-10T13:05:00.002+08:00

Street vendor selling porridge © hennyriedmueller

Good news!

2008-04-07T09:52:00.005+08:00

Indonesia's economic growth is forecast at 6 per cent this year, down from 6.4 per cent predicted earlier, in line with a slowing of the country's exports sparked by a world economic slowdown, the World Bank said on Tuesday...

However, it predicted Indonesia's economy growth would rise to 6.4 per cent in 2009...

Despite the slowing global economy, in 2007 Indonesia's economic growth accelerated to a 10-year high of 6.3 per cent, the World Bank said.

"This growth rate reduced (Indonesia's) poverty rate from 17.8 per cent (in 2006) to 16.6 per cent (in 2007), based on the government's poverty line," it said.

The growth rate also reversed the recent trend toward jobless growth by causing unemployment to fall from 10.3 per cent to 9.1 per cent.

This is good news; and it is from the World Bank, which often offers gloomy prediction of Indonesia's economic growth.

I am not a macroeconomist, but I am willing to bet that the economy this year will grow faster than 6 percent, maybe close to last year's growth rate of 6.3 percent.

Malnutrition makes you less educated

2007-12-12T14:16:00.000+08:00

In Indonesia, more than 30% of children under the age of 5 years suffer from chronic malnourishment. The long-term consequences of childhood malnutrition are well established in the literature. Yet, little is known about the extent to which these children are able to recover from some of the long-term deficits in health outcomes caused by childhood undernourishment. To capture the association between nutritional deficiency at young ages and subsequent health status, a panel data is constructed using observations on children between the age of 3 and 59 months in 1993 who are followed through the 1997 and 2000 waves of the Indonesian Family Life Survey. A dynamic conditional health demand function is estimated, where the coefficient on the one-period lagged health status captures the extent of recovery, if any, from childhood malnutrition. This coefficient is also known as the ‘catch-up’ term. ... [A] coefficient of 0.23 estimated here indicates that by adolescence, a malnourished child will grow to be only 0.95 cm shorter than a well-nourished child...

That is Subha Mani of the University of Southern California in a recent job market paper. She concludes "poor nutrition at young ages will cause some, but not severe, retardation in the growth of future height indicating partial catch-up effects".

Once centimeter is still pretty large, I think. Besides, she also calculates that malnourished child will also have 0.6 less year of schooling.

Thanks to Arya Gaduh for the pointer.

Are Indonesia's poverty rates declining?

2007-10-27T12:14:00.000+08:00

An old post by Arya Gaduh of Nalar Ekonomi caught my attention. It is about Indonesia's latest poverty rates published by Statistics Indonesia (BPS): It reports that the number of Indonesian poor declines by 2.13 million, or about 1.2 percentage points (from 17.75% to 16.58%).

The fall is not statistically significant, however, as Arya correctly suggests.

A back of envelope calculation gives me a standard error of the difference in the poverty rates of about 2 percentage points. It is so large so that it may overwhelm the estimated difference.

It means we cannot really say whether the poverty rate last year (17.75%) is really different from the rate this year (16.58%).

In that sense, the BPS's press release is rather misleading. It reports that poverty rate declines, but it does not tell us the standard error of the fall.

It is as if BPS gets the number of the poor from the entire Indonesia's population, not from a small sample of it only.

Of course, I am glad to hear that poverty rate falls. But, at the same time, BPS should acknowledge that there is too much noise in the data. That we do not really have convincing evidence that poverty rate has actually declined.

Banks comply with capital requirements?

2007-09-22T16:43:00.000+08:00

Using dynamic panel data models, we examine the effect of capital requirement on banks’ behavior in Indonesia. We find inconclusive results. Banks tend to comply with capital requirement: They increase their capital ratio when their CAR is lower than, or falling towards, the eight percent regulatory minimum. However, most of our results are statistically significant at 20-30% level of significance only. Moreover, our results are mostly driven by private domestic banks and heavily-undercapitalized banks that were closely monitored by regulator in the aftermath of the 1998 crisis. Whether, in normal circumstances, banks in developing countries like Indonesia comply with capital requirement, therefore, remains questionable.

That's from another recent working paper by Parinduri and Riyanto. Comments and suggestions are welcome.

Indonesian economy grows faster

2007-08-18T14:58:00.000+08:00

Almost seven percent in the second quarter this year. If we exclude oil and gas sectors, that is.

Indonesia's economic growth (2002-2007)

Indonesia's economy as a whole grows by 6.3%, which is also quite good. But, the slower growth is because oil and gas sectors continue contracting.

If this seven percent growth translates into lower unemployment- and poverty rates, all would be very well.

Strategic sale works

2007-08-12T17:26:00.000+08:00

We examine the effect of strategic sale—the sale of banks to strategic foreign investors—on banks’ performance. The Government of Indonesia implemented such a policy as a part of bank restructuring in the aftermath of the 1998 banking crisis. Using difference-in-difference models, we find that strategic sale leads to 12%-15% cost reduction. These results are robust to the use of other estimators such as difference-in-difference matching-estimators and stochastic-frontier analysis, to that of other performance measures such as return on assets and net interest margin, and also to that of different types of samples. These suggest that strategic sale could play an important role in restructuring troubled banks in developing countries.

In short, the sale of Indonesian banks to strategic foreign investors a couple of years ago is a good thing.

That's from a recent working paper by Parinduri and Riyanto.

Indonesia's interest rate anomaly?

2007-07-14T11:27:00.000+08:00

"...[there is] an anomaly between the BI benchmark rate and bank deposit interest rates in Indonesia at present," the central bank governor [Burhanudin Abdullah] told the House of Representatives Financial Commission at a hearing which began Thursday evening and lasted Friday.

He said the anomaly lay in the fact that the BI rate (8.25 percent) was higher than the bank deposit rate of 5 percent.

"The BI benchmark rate should have been lower than the bank deposit interest rate," he added.

He may can call it an anomaly, but the higher Bank Indonesia benchmark rate is central bank's own policy choice.

It is the consequence of central bank's obsession to lower inflation rate by setting excessively high interest rate.

Semi-hiatus

2007-06-16T11:14:00.000+08:00

Regular readers may observe that I have been on unofficial semi-hiatus for the last couple of months. Unfortunately, now I need to have a long hiatus, perhaps for the rest of this year.

Stop by once every few months, though; I may write one post or two.

In the meantime, you can browse my categories of posts and archives, which are available in the sidebar.

The amazing comeback of Asian economies

2007-05-30T10:21:00.000+08:00

Economic recoveries are surprisingly fast, though I still believe that, if IMF did not require too tight fiscal and monetary policies, Indonesia's economic growth could have been even higher.

Economic Growth Rates

From Takatoshi Ito's paper on Asian Crisis; via Dani Rodrik's weblog.

Pirates of the East Indies

2007-05-27T17:10:00.000+08:00

In 2005, [the International Maritime Bureau] recorded 276 [pirate] attempts and attacks. In 2004, there were 329 and in 2003, 445 incidents. The IMB director, Pottengal Mukundan, said many incidents go unreported.

Indonesia, however, continues to be the world's piracy hotspot, recording 50 attacks in 2006 -- a drop from 79 the year before...

On April 16 of this year, 10 speedboats attacked a merchant ship in waters south of Indonesia, but failed to board the vessel. A month earlier, on March 14, in waters about 50 km east of Pulau Bintan, Indonesia, a tanker was not so fortunate when it was attacked by pirates riding two speedboats.

The tanker was boarded by 10 men dressed in camouflage and carrying shotguns, rifles and daggers. The pirates beat the ship's captain, tied up the crew and blindfolded them before damaging the ship's communication equipment and stealing cash, crew passports and telephones.

From the cnews.

Indonesians thank sparingly?

2007-05-18T08:44:00.000+08:00

Indonesians use terima kasih [thank you - RAP] and makasih only sparingly. When someone performs a routine service for someone else, they are often not thanked for it. In such situations, if you feel tempted to say terima kasih, you should try to replace it with some other way of acknowledgement, such as a nod.

Why do they thank sparingly? This seems to be linked to traditional values. Most Indonesians, especially Javanese, have a firm sense of social hierarchy and of status differences. So they are unlikely to thank a person of lower status in many everyday situations as they regard that person to be simply carrying out his or her social obligations.

That is according to Tim Hassall, an ANU's linguistics expert.

I have no evidence or statistics of any kind to offer (he'd better have), but I do not think Indonesians thank sparingly. I can say that I thank all the time, and so do most people I know of.

I do not buy his claim that most Indonesians "have a firm sense of social hierarchy and of status differences" either. I mean, does he really think Indonesians and, say, Australians are really different on this matter?

What do you think?

Gloomy forecasters, still

2007-05-16T12:37:00.000+08:00

Last year I commented on how gloomy forecasters' had been on Indonesia's economic growth. Guess what: They still are.

The average forecast of first quarter growth by a Dow Jones Newswires poll of 12 regional economists is 5.75 percent. The economy actually grows by 6 percent. On average, they miss the target by about 25 percentage points.

So, will all the glooms go away? Maybe not yet. As the good news about Indonesia's economy continues flowing, however, the forecasters would have to eventually turn about face.

I mean, it would embarrassing for them to consistently underestimate the strength of Indonesia's economy, right?

Indonesia's giant state firms

2007-05-15T10:17:00.000+08:00

Of the almost 140 companies that are majority-owned by the government, only 12 have been listed on the [Jakarta Stock Exchange]. However, these 12 account for nearly 37 percent... of total market capitalization...

That's how dominant these few state-owned enterprises have been in the Indonesia's stock market. The three largest are PT Telkom Indonesia, Bank BRI, and Bank Mandiri, which account for 28 percent of the market capitalization.

From the Jakarta Post's editorial, calling the government to privatize other state-owned firms.

Foxes ruled Indonesia's financial chicken coop

2007-05-07T09:18:00.000+08:00

[The deregulation of Indonesia's banking sector in the 1980s and 1990s] "opened the floodgates for local crony conglomerates to set up private banks and take in deposits from a trusting public."

With no rule of law, there was no oversight and no supervision, he said.

"The foxes were running wild in the financial chicken coop and no one, ...pressured the Indonesians to design safeguards to protect the public's deposits," he said. One result was the 1997-98 financial crisis "that plunged tens of millions into abject poverty."

That's Jeffrey Winters of Northwestern University's take on Indonesia's banking deregulation. The language, it is a bit too colorful for my taste. And, don't you think his assessment is over the top?

By the way, Winters is commenting on World Bank President Paul Wolfowitz role as U.S. ambassador to Indonesia in the 1980s.

Wages had not changed much?

2007-05-03T14:22:00.000+08:00

It's Labor Day. Workers claim that wages had not changed much. Which begs the question: compared to what?

Real wages in Indonesia (BPS)

Statistics of average real wages (total industri in the graph above) shows that since the 1998 crisis, real wages have been increasing at more than 7 percent per year, which double the real wages in 10-year time.

However, compared to the pre-crisis peak of real wages in 1997, current real wages are only about 20 percent higher, which may explain workers' claim. Moreover, in the last two years, real wages have been stagnating, if not declining.

And labors, of course, are not created equal. Cigarette factory workers (industri rokok) and garment workers (industri pakaian jadi) are among the winners, while ceramic workers (industri batu bata, ubin) are the losers.

The rich are getting richer?

2007-04-26T09:14:00.000+08:00

The "trends in top incomes does not suggest that there has been a sustained long-term increase in income inequality in Indonesia", Andrew Leigh and Pierre van der Eng conclude in a recent working paper.

In short, as Indonesia's economy grows, the rich do get richer. But so do the poor.

Income Share of the Top 10% in Indonesia (Figure 2 in the paper)

Hence, in the last two decades, the income share of the 10 percent richest remains pretty much the same, in the 35%-40% range.

GDP per capita of US$18,000 by 2030?

2007-04-24T15:45:00.000+08:00

That's the target of Indonesia Forum Foundation's 'Indonesia Vision 2030', which requires Indonesia's economy to grow by 7.26 percent annually.

Not an impossible goal, to say the least.

Indonesia's GDP per Capita

More likely though, Indonesia's economy would grow by about five percent per year so that GDP per capita PPP at constant 2000 international $ in 2030 will be about $12,000 (the red dotted line).

That would be quite excellent in itself, though, of course, the government could "easily" increase economic growth further.

Such as, by shredding some paper forms and closing some offices.

Indonesia in pictures: Bright future

2007-04-17T14:28:00.000+08:00