The Second Parchment

On Economics, Finance, Politics and Music

The Warriors of Tolerance


This is what this country needs. Read this. And this. I feel very happy to have been given the opportunity to join the team. The 10 young Indonesians in this photo will one day lead the movement of cultural, religious, and gender tolerance in Indonesia.


Short Selling in Indonesia


…is allowed but strictly regulated, thanks to the 2008 subprime mortgage crisis. A customer needs to have a minimum of IDR 200,000,000 (approximately USD 20,000) in their stock account to have the privilege of hedging their stock investments when the market plunges. Download the regulation here: Short Selling in Indonesia (in Bahasa Indonesia).

Most active, technical traders I’ve talked to play the one and only strategy to gain profit: capital gains from buying low and selling high. What do they do when the stock declines as Chairman Bernanke recently announced his plan to decelerate the Fed’s quantitative easing program and as the country is in a political turmoil as the price of fuel increases? Simply hope that the market would bounce back again.

Relevant update: Greece is planning on lifting its short-selling ban. [Article].

Indonesia’s Fuel Hike: Eliminating Arbitrage?

The discussion about the impending rise of fuel price as the government schedules on removing subsidies for fuel has turned into a fiery political debate in every part of Indonesia. Despite President Yudhoyono’s coalition not unanimously approving of this proposed policy (I saw supporters of Partai Keadilan Sejahtara demonstrating earlier this afternoon), the probability of it happening is so high that markets have reacted, adjusting to expectations. Just today, Rupiah significantly depreciated against the USD. The price of a dollar reached more than Rp. 10,000, which happened for the first time since 2009 as the world slowly recovers from the 2008 financial meltdown.

Our recently-appointed Finance Minister, Dr. Chatib Basri, commented that the government’s decision to revoke the subsidy will bring about a positive outcome. Most people and economists supporting the government base their support on a classic argument: they argue that subsidies should be channeled towards productive long-run sectors (technology, health, education). But Dr. Basri takes a different angle. Quoting from an interview by the Jakarta Globe, Dr. Basri commented that:

“The biggest deficit in our trade balance is from oil and gas imports,” Chatib said at the State Palace on Wednesday. “If the price increases, the price disparity between the domestic and international fuel price will narrow.”

To elaborate further, Dr. Basri, as paraphrased by the interviewer, said that “the government’s plan to raise the price of subsidized fuel would cut the amount of oil and gas smuggled out of the country.” In the article, the Ministry of Energy and Mineral Resources confirms that Indonesia has indeed been a recurrent victim of rampant fuel smuggling. Subsidized fuel is comparatively less expensive in Indonesia compared to other Southeast Asian countries that those knowing how to circumvent the procedures of Indonesia’s customs have taken advantage of such significant disparity in price. Buy low in Indonesia, sell high overseas. Assuming that all types of transportation costs are removed, this act of fuel smuggling is a form of arbitrage in the fuel market.

However, I believe that price differences between Indonesia’s and foreign fuel markets shouldn’t be a problem if there exists a strong and strict regulative framework within Indonesia’s customs. The argument that the government should let the price of fuel increase so as to eliminate arbitrage opportunities isn’t compelling enough. While it’s very clear that Dr. Basri, one of Indonesia’s esteemed economists, is not advocating for this argument, some important government officials actually are. A solution to Indonesia’s problem in catching profit-making arbitrageurs shouldn’t be raising the cost of fuel. It should be anything other than that i.e. stronger enforcement of export-import laws, better oversight and controlling or cargos.

Regardless, the price of fuel is rising soon. Like it or not, it’s happening, and any Indonesian consumer irrespective of their level of wealth, in the short run, wouldn’t be happy with things getting more expensive. While I believe that taxpayers’ money should be directed at productive sectors (just like most people do), it still somewhat saddens me that an hour ago I was asked to pay for an extra 20% to buy a bottle of a drink I’m currently addicted to. Oh well—what can you do.

Reid Hoffman’s Advice

Hoffman’s presentation is one of the most simplistic, direct, yet substantive presentations I’ve ever seen. This one focuses on what sort of skills college graduates should hone and what actions to take to be a step ahead in the advancement of their careers.

I particularly find his third point appealing: to take intellectual risks. Unlike most self-proclaimed career gurus out there, Hoffman emphasizes that taking risks is important as long as its negative repercussions (which emerge in a worse-case scenario) don’t severely impact on one’s main career path.

On Regressions

What sort of new hobby do economics students who just completed an econometrics class acquire? Regressing. Some of my friends and I will nearly finish our econometrics class, and it has somewhat become our new hobby (sometimes, if assignments are not due the day after) to find variables and data, open Stata, and regress. It’s just fun to see how sometimes variables that aren’t intuitively correlated are statistically significant in a 5% level, using proper regression methods and techniques.

Like this time series regression. Who ever thought that 99% of variation in the S&P 500 is explained by butter production in Bangladesh?


Respected economists don’t always argue via working papers or mathematical models. Remember the drama between Professor Rogoff & Stiglitz in 2002? These are my favorite lines.

“The laws of economics may be different in your part of the gamma quadrant, but around here we find that when an almost bankrupt government fails to credibly constrain the time profile of its fiscal deficits, things generally get worse instead of better.”

“If only you had crossed over 19th Street from the Bank to the Fund a little more often, Joe, maybe things would have turned out differently.”

Read the full open letter here.

Gender Equality in Indonesia’s Military Academy


37 years after the United States Military Academy at West Point started admitting female cadets as their students, The Republic of Indonesia’s Military Academy at Magelang recently announced that it will start accepting female cadets–known as tarunis–for this year’s applicants (equivalent to members of the Class of 2017).

Priorities are given to high school students with previous background or experience in military and semi-military trainings, such as graduates of my high school, Taruna Nusantara SHS, and former members of Indonesia’s national flag hoisting team.

Unlike the case at West Point whereby the decision was mainly based on the passage of the Equal Right Amendments in 1972, there seems to be no particular recent regulatory reform in Indonesia that preceded this historical decision. It was formalized after members affiliated with the Indonesian military consensually deemed the promotion of gender equality within the military academy as important. Quoting a paraphrase from Major General Istu Hari Subagio regarding the decision, “the acceptance of female cadets [to the academy] is a realization of the Indonesia’s military’s effort to achieve gender equality. They will be educated together with the male cadets (tarunas), at the same place, with the same academic courses.”

Irrelevant side note: the U.S. is also currently dealing with an issue related to equality—marriage equality. Listen to the SCOTUS’ oral argument of Windsor v. United States here. Download the transcript of the hearing here.

In Your Atmosphere


“I’m gonna steer clear, I’d burn up in your atmosphere…”

Roubini at NYU Abu Dhabi


Professor Nouriel Roubini is in town! (Yes, this Roubini). A group of us just had a two-hour lunch with him. Our discussion mainly revolved around the global economy and international trade, both his areas of expertise, but he also touched on several current domestic economic issues. His talk wasn’t really highlighted by value judgments (academics are often very careful about the opinions they assert, which I value very highly). He did, however, made some statements that I think are interesting: a) China should consider lowering its 40-50% savings rate, despite him acknowledging that this behavior has been partially stimulated by the ‘fear’ that the Chinese future will be dominated by the elderly not qualified for employment opportunities that boost the Chinese economy, b) there is a decline of hegemonic political power within the G-7 countries, and the global economy has been shaped by the G-20 countries instead, c) there would have been a massive collateral damage had the U.S. government not provided extra liquidity to its failing banks in 2007-2008, d) current U.S. zero-bound interest rate policy has caused a spillover over other monetary policies pursued in other countries.

He briefly talked about the Euro crisis, and I was curious as to his opinion on the European Central Bank’s role in the eurozone. Unlike the Bank of Japan and the Federal Reserve, the ECB has no privilege or prerogative to conduct quantitative easings (QEs) to lower spreads with respect to the German bunds. The Lisbon Treaty regulates this. I asked his opinion on this, considering that spreads in 7 eurozone countries have been very large over the past 3-4 years. This is a paraphrased, simplified version of what he said:

“The monetary policy objective in the Eurozone is discrepant from that of Japan or the United States. In the United States, the Federal Reserve is constitutionally mandated to focus on improving the following two variables: price stability in unemployment rates. The ECB has no similar mandate; in fact, it places a small emphasis on the latter variable. It aims to maintain price stability within the eurozone more than reducing unemployment rates of its member countries.”

I guess this makes sense—no German citizens would like to see their price of commodities being volatile in exchange for more Greek college graduates having higher level of employment (is this true?). QEs sometimes involve fiscal transfers as well, which is highly unpopular among constituents. This extrapolation is very tenuous though, one can argue that this is true if there’s actually relevant supporting polls on this particular issue.

Now, if we take Professor Roubini’s statement as granted, we can conjecture what will the ECB’s Taylor Rule look like. Since the ECB focuses on price stability more than unemployment, the parameter assigned to the former variable is expected to be much greater compared to the coefficient assigned to the latter variable. This would be an exciting econometrics project for anybody out there interested in monetary economics.

Update: Yesterday’s FT article (March 5th) indirectly corroborated Professor Roubini’s comment on ECB’s main role. “…the ECB has no formal role in managing unemployment. Its one purpose in life is to guarantee price stability by keeping inflation “close to, but below” 2 per cent over a deliberately unspecified medium term.”

We Don’t Eat…by James Vincent McMorrow. His musical genre is similar to that of Fitszimmons, the healing type. Here’s the link to the music video. Click this (female cover, piano-based) and this (male cover, band + strings) for what I think are the best covers of the song. Pay a particular attention to the “we’d just be running down, the same old life, the same old story” line. The unexpected euphonious transition will make you smile, the same way Coldplay does it with their Charlie Brown’s “light a fire, a fire a spark, light a fire, flame in my heart.”

Side note: watch how John Mayer had his ‘Born and Raised’ album artwork meticulously crafted by David Smith.