The Second Parchment

On Economics, Finance, Politics and Music

Category: Indonesia’s Politics & Economy

FP: Optimism in Indonesia

A positive article about Indonesia’s economy in Foreign Policy. Highlights:

1. Steady growth rate: 4-6% per year. Inflation rate is maintained at an 8% level.

2. By 2030, 90% of Indonesia’s fast-growing cities will be located outside the island of Java.

3. Interestingly, 50% of Indonesia’s GDP comes from services (emphasis on financial services).

4. Unlike most developing countries, the increasing level of local consumption promotes growth more than exports do. Also read this.

5. It is expected that in 2030, Indonesia’s economy will be on par with that of Germany and the United Kingdom.

Irrelevant side note: They are bringing Les Miserables the musical to your local cinemas.

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2nd Round: Jakarta Gubernatorial Election

The second round of the Jakarta gubernatorial election is approaching fast (September 20th), and like any other elections, the political atmosphere has been marked by numerous evolving stories that can potentially render swing voters turn to a side that resonates with their values more.

I have been following the news from Abu Dhabi, and things appear to be not in favor of the incumbent governor Fauzi Bowo. While the Deutsch-educated governor is suspected of money laundering ($5.8 million), the other candidate–the current Mayor of Surakarta–is applauded by Princetonian social scientists for his innovative policies on moving Surakarta forward.

As a resident of Jakarta who unfortunately can not use his right to vote, I really hope that the people of Jakarta will use their voices by voting the ‘right’ candidate tomorrow.

Update: Governor Fauzi Bowo called Mayor Joko Widodo, congratulating him for potentially winning the race.

Indonesia’s Minuscule Budget for Religious Tolerance

Both international and local media, over the past few years, have reported clashes among citizens of the red-and-white nation in relation to a rise in religious intolerance within the country. A report from the Jakarta-based Center of Strategic and International Affairs (CSIS) demonstrates that major contributors to such disharmonies, in addition to the society itself, include the government. Recent occurrences seem to be validating the finding. The social media, for instance, has recently been infuriated by a statement from Indonesia’s Minister of Religious Affairs regarding his proposed stratagem to lower the degree of violence in Sampang, a village located in the island of Madura. Below is an excerpt taken from the Jakarta Post:

Religious Affairs Minister Suryadharma Ali says converting Shiite Muslims to the Sunni Islam … would be the best way to prevent violent outbreaks between the sects in Sampang, East Java.

All of these turbulences made me wonder: how much of Indonesian taxpayers’ money does the Indonesian government spend on promoting religious tolerance? My rough calculation, unfortunately, leads to a dismal conclusion. This year, 2012, only Rp 20 billion out of Rp 39.3 trillion goes to endeavoring in making Indonesians affiliated with different beliefs sit side by side peacefully. Only approximately 0.051% of the Rp 39.3 trillion goes to minimizing religious intolerance.

Today’s publication in the Jakarta Post reflects a similar grim situation in regards to the ministry’s 2013 allocation for programs related to interweaving acceptance across beliefs. The proposed budget allocation for the ministry has been raised to Rp 41.7 trillion, but only 13.33% of which is allocated for “contingency spending,” of which, I believe, finances for promoting religious tolerance will be a meager portion.

Side note: An official article featured on the website of Indonesia’s Secretary of Cabinet states that the Ministry of Religious Affairs is one of the ministries that is expected to receive an allocation of more than Rp 20 trillion in 2013. It ranks as the fifth, higher than the Ministry of Transportion and Ministry of Health:

1. Ministry of Defense (Rp 77.7 trillion) | 2. Ministry of Public Work (Rp 69.1 trillion) | 3. Ministry of Education and Culture (Rp 66 trillion) | 4. Indonesian National Police (Rp. 43.4 trillion) | 5. Ministry of Religious Affairs (Rp 41.7 trillion) | 6. Ministry of Transporation (Rp 31.4 trillion) | 7. Ministry of Health (31.2 trillion).

On Alimoeso’s Interview

An interesting interview with Soetarto Alimoeso (one of the Director Generals of Indonesia’s Ministry of Agriculture) about the Indonesian government intervening in the importation process and local market of basic food. He claims that unpredictable price fluctuation is a type of ‘market failure’ (really?), thus necessitating the Indonesian Bureau of Logistics (BULOG) to dip its hand into the market in an effort to rectify it.

His statement fundamentally contrasts with a prominent Indonesian economist who, based on my inference, opposes BULOG’s manipulative method of distorting the price of basic food in Indonesia. One day before my departure to Abu Dhabi, I watched ‘Suara Anda’ (Your Voice), a broadcasted roundtable discussion among Indonesian policymakers, economists, and scientists. I recall Kwik Kian Gie (former Coordinating Minister of Economy under Abdurrahman Wahid’s presidency) saying this:

BULOG’s intervention is undesirable simply because it defies economics’ most rudimentary principle. It purchases basic food produced in a high cost and resells it in a price lower than its production cost.

What he said was not exactly the same as what is written above, but I can corroborate that he was applauded when he said it out loud. A substantial portion of Indonesians, apparently, are fiscal conservatives who dislike government policies aimed at resolving economic problems in the short run. Indonesian taxpayers who were silent watchers of the discussion seem to detest the notion of their taxed income being used for implementing placebo policies rather than being used for promoting long-term growth by incentivizing local basic food producers.

Side note: The article also highlights that basic food importation in Indonesia is currently controlled by a number of private firms. Several economists doubting the effectiveness of Indonesia’s antitrust laws, during the televised ‘Suara Anda’ (Your Voice) discussion, proposed that the government take over these firms and form a non-profit-maximizing public monopoly to preclude the formation of cartels and maintain a socially-admirable price of basic food.

Flower, Gleam and Glow: On Indonesia’s Flower Industry

During my way back to Jakarta after a family vacation at a nirvana-like Kampung Sampireun (translated: Sampireun Village), my head was inundated with thoughts on Indonesia’s agricultural economy. The afternoon breeze touching my face as we forayed into Garut’s green lands conjured up a childhood memory of  a natural science class I took in elementary school: “Look at your surroundings,” my teacher said. “Want to know how fertile that land you see over there? Impale a cassava stem on the ground, and see how tall the dry stick will have grown in a week or two. No need to regularly fertilize it or anything. Just leave it there.” So I did; my friends and I gullibly followed my teacher’s instruction, left it for a few weeks, and were surprised to see trees taller than any members of the class. If you ask any Indonesian you know, they would more or less tell the same story.

The world has known that Indonesia has a potent yet unharnessed comparative advantage in agriculture ever since European sea explorers harbored their ships on its islands. It was (and is hopefully still) a tropical trove of spices; no foreigners should claim to have visited Indonesia without taking back some throat-relaxing jamu. The country boasts its leadership in the world market of palm oil, though recently the enactment of grave policies about the country’s approach to rescuing its soy bean industry have caught the attention of local newspaper journalists. Food-based agriculture entices me daily (as my father deals with it night and day), but Garut’s brisk atmosphere made me think of flowers instead. Roses, chrysanthemums, orchids, tulips, lilies. How is Indonesia doing in the realm of floriculture (the culturing and production of flowers), and how has its market condition been?

The only related and legitimate online study I could find is an undated study by Toto Sutater and Kusumah Effendie who worked (or are probably still working) for the Research Institute for Ornamental Plants, Central Research Institute for Horticulture, Agency for Agricultural Research and Development. Both FAO-affiliated researchers highlights Indonesia’s burgeoning flower industry and scientific obstacles that had occasionally stymied the growth of the business. From the table presented, I can deduce that they drew conclusions from a regression analysis started in 1996, which was 16 years ago. An old research indeed. You can read the details of the market research report here, but here is an abridged version of the report’s conclusion:

Research on cut flowers … is very important to support and solve problems faced by growers. Development of domestic market is a prerequisite…as well as competitive price. A well established wholesale market is needed in Jakarta. The short production cycle of cut flowers and ornamental plants makes the country and ideal place for multiplication of planting material.

The report generally sounds positive and hopeful. Yet, there are some parts in which the authors emphasize the need for the private and public sector to start a collective effort in scientific advancement in horticulture and the importance of creating a systematized market so as to assure sustainable demand.

The question is, are the author’s inferences still relevant in 2012? I could not find any statistical evidence or updated horticultural studies to find out whether they are or are not, but all of the online articles I read regarding Indonesia’s floriculture rarely contain an acrimonious tone. A farmer-cum-business owner in this post, for instance, says that there is a generally stable and growing local demand of flowers from all parts of Indonesia, except from Papua. He further says that a substantial amount of the seeds are acquired from the international market, indicating that the problem about seed technology mentioned in the FAO report still exists. Some articles cover positive news about local industries exporting their fresh roses overseas, such as the Netherlands and Singapore. Others highlight that the the business of flowers is growing and that the floriculture market has been getting more competitive.

Whatever the challenges are, it should be noted that Indonesia is located in a place in which orchids are well-acclimated, that it has been exporting its floral commodities, and that the country’s floral business is progressively expanding. Indeed, flowers do not grow taller than a 8-year-old boy simply by embedding their stems on the ground, but the aforementioned facts may somehow ignite one’s hidden entrepreneurial spirit.

(Irrelevant-yet-interesting) sidenote: Flowers once ruled the economy. The Europeans were once so enthralled by tulips that they caused their own economic meltdown!

A Short Note on Libertarianism

How do you call a person who supports Obama’s approach to LGBT rights but agrees with Romney’s proposal to deregulate Wall Street by overhauling the Dodd-Frank Act? A libertarian–according to Daniel Moseley of University of North Carolina at Chapel Hill.

…it is commonly held that libertarians are economically conservative and socially liberal…

I have not done any thorough research, but some (American scholars) believe that the coexistence of the two ideologies–fiscal conservatism and social liberalism–is inherently paradoxical. In the United States and around the world, it seems to be difficult to conceive a government that reduces both non-military and military spending at the same time; consequently, the party is extremely under-represented in any political spectrum.

Or, there might be a lot of people supporting the idea. It is just that they do not bother incrementally climbing up the ladder until its recognition is on par with that of the typical right & left political parties. This Wikipedia list shows that most libertarian parties were established in the early 2000s or late 1990s, except the one in the U.S. I can imagine how huge a collective action is needed to inculcate potential voters with the party’s considerably novel ideology.

Side note: after perusing the ideologies of Indonesia’s political parties promoted during the 2009 elections (there were 38 parties involved!), I can not find any implicit and explicit statements regarding their support and/or opposition to libertarianism. This lives up to my expectation.

The Goat Loan

When firms or individuals seek financial capital to start or catalyze their projects, they rely on banks to provide them with the amount of loans they want to borrow. At the same time, they hope that the central bank has not been letting the interest rate rise, because if it did, they would change their minds and save the idea until things get amenable. Nobody wants to take the risk of defaulting on a loan due to high interest rates. What complicates further is the fact that not everybody–especially people with low income–is deemed creditworthy enough to borrow. And even if they pass the strict creditworthiness evaluation (assuming that politicians have learned from the 2008 financial crisis), it is not guaranteed that there is no red tape interweaving the banking system.

A priest residing in Indonesia by the name of Father Charles Patrick Edward Burrows (also known as Romo Carolus, among the locals) managed to find a way to escape from the conventional banking system. Instead of loaning out Rupiahs (Indonesia’s currency) and expecting borrowers to return them in the future with an exorbitant interest rate as a compensating differential for not being financially secure, he loans out goats–the grass-eating herbivore. Here is how it works: the loaner loans out at least two goats to a borrower (I will call these goats ‘parent goats’), the borrower nurtures the goats until they breed more little goats, and finally the borrower returns the parent goats to the loaner. The borrower, who amasses capital gains from the little goats to which the parent goats give birth will then raise them and sell them for money.

It is not directly stated how Romo Carolus assesses a borrower’s creditworthiness, but based on a Youtube video a friend of mine posted on Facebook, I am convinced that everybody with a low income can borrow a goat under a binding agreement that profits earned from raising the goats are allocated to the borrower’s or the borrower’s relative’s educational advancement. The Youtube video itself names the loan a scholarship due to the compulsory requirement that the money acquired be used for enrolling in a higher level of education. The hardworking yet gleeful scholarship recipients starring the video, for instance, are able to study at Yos Sudarso Jeruklegi Senior High School in Cilacap, West Java as a result of the goat loans. Raising goats is not easy as it seems, but who does not want to borrow with 0% interest rate and low cost (grass is still everywhere in most rural areas) to gain human capital?

Indeed, the priest who initiated the program is evidently not aiming for profit as he only demands the borrower to return the parent goats without additional perks. Moreover, as the parent goats get older, their value depreciates, suggesting that the program itself is driven by altruistic rationales. But since outcomes of researches on microfinance have inclined towards inefficiency (the outcomes are mixed), why not turn Romo Carolus’ compassionate program into a social enterprise, so as to ensure the program’s sustainability? There has not been any research yet, but I will not be surprised if we find out that people below the poverty line living in areas that support sustenance for livestocks, or people in general, will be more responsible when it comes to raising two goats than maintaining millions of Rupiahs. It might be a long shot, as goats are not as liquid as money, grass will eventually be hard to find, and it takes around 150 days for goats to give birth to little goats, but there must be a creative thinker out there who can transform ‘The Goat Loan’ tagline from a joke into something laudable.