economics vs. finance: a layman perspective

Some of my friends perhaps have already heard about this "perspective" from me. Okay, so here we go. What do you think are the differences between economics and finance?

1. Who cause the latest slump? Irresponsible derivatives invented by financial engineers. Now, after the slump, who fixed everything? Economists.
2. Economists work for the well being of the people, in a country, or in the world. Finance analysts, financial engineers, or whatever professions related to finance, they work for the well being of only some people or some parties at best.
3. Finance: piling up wealth for some people while reducing other's wealth thereby increasing poverty and the gap between the rich and the poor.

Okay, what I wrote here is merely my own subjective opinion based on the facts that I have observed in the past few years, and of course people can argue that finance is not so much about increasing wealth on some people or some parties. Yes, there are personal finance, corporate finance, public finance etc etc. Furthermore, they are trying right now not only to transfer wealth, but how they can generate wealth.

These are further facts, but what I want to say here is BE RESPONSIBLE! Do not just create stupid derivatives in which yes, you can gather more and more money from that, but the consequences shouldn't be overlooked. Executive bonuses, do they really deserve those bonuses? I don't think so ... Those bonuses are too excessive!

Be responsible, and life is not so much only and only about wealth and money. There's something money can't buy! Or if you still think money can buy everything, re-think!

the first hundred days of Yudhoyono’s administration

As it is published in "Hey Diaspora!"
http://heydiaspora.com/the-first-hundred-days-of-yudhoyonos-administration/

"Government of the people, by the people, for the people, shall not perish from the Earth."

– Abraham Lincoln

First Hundred Days, a tradition that dated back to the administration of Franklin D. Roosevelt during the period of New Deal in the United States, has been adopted by Indonesian presidents since the administration of Megawati Sukarnoputri in 1999. Many have criticized the effectiveness of this first hundred days program, yet it remains a good parameter to understand the direction of the government.

President Yudhoyono has set 45 programs to be implemented by his cabinet in the first hundred days in office including 15 priority programs:  judicial mafia eradication, strategic industries revitalization, terrorism prevention, adequate electricity supply, food security, sugar and fertilizer industry revitalization, infrastructures improvement, spatial planning restructuring, improvement of credit scheme policy for small and medium-enterprises, better budget management, climate and environmental change prevention, health reform, education reform, good disaster management, and synchronization of relations between central and local administrations.

Dr. Boediono, in an invited public lecture hosted by Rajaratnam School of International Studies (RSIS) a few months ago, stressed out that the main goal of this new government is “to meet the expectation of all people, obtain equitable prosperity for all, and establish Indonesia as a respected member of the world’s community.” This strong commitment is focused in achieving the wellbeing of the people, which is dubbed as people-centric-economic-policy (ekonomi kerakyatan).

In a separate occasion, during a two-day summit ASEAN Summit in Bangkok this October, President Yudhoyono stated that the government is determined to raise real GDP growth to 7% per year, reduce poverty and unemployment, and improve the investment climate.

Seven out of fifteen of the priority programs are set to achieve this economic agenda. We would like to see how this target could be achieved and the challenges facing Yudhoyono’s administration ahead.

Electricity Crisis

"What did people use for lighting in Indonesia before they used candles?"

– I hope the answer is not electricity…

Electricity crisis has been facing Indonesia since 2008. Electricity consumption grows 6.87% every year, compared with the growth of the generating capacity of only 3.5% every year. Blackouts are spreading across Java, and are increasingly common in the other islands as well. PT PLN was unable to increase the electricity capacity in the year 2008. This inability is mainly attributed to the lack in the government budget planning. “In the company’s work budget plan, PLN had only targeted the load growth to be five percents, with fuel demand at around nine million kiloliters,” said Muljo Adji, PT PLN’s Manager of Load and Distribution Center, “that alone takes around Rp 69 trillion in fuel subsidies and the government only allocated subsidies of Rp 54.9 trillion in the draft Revised 2008 State Budget.”

According to the recent statement from the Coordinating Minister of Economics, Hatta Radjasa, for this year, another Rp 30 trillion will be needed to provide adequate electricity supply in Indonesia. “Rp 5.6 trillion is allocated to fulfill the electricity demand in the area of DKI Jakarta alone.”

In order to get Indonesia out of this crisis, there is an urgent need to construct new power plants. Construction of new power plants will be done through Independent Power Producer (IPP) scheme, to encourage independent private entities to own facilities to generate electric power for sale to end users. Furthermore, there will be reorganization plan for the PT PLN itself. All of these efforts will require a stable source of financing, such as credit loans and direct investments.

Infrastructure Improvements

Dr. Boediono mentioned three types of infrastructure that this administration will focus on: physical infrastructure, institutional infrastructure, and social infrastructure. One of the main priorities of the current government is to improve physical infrastructure in the form of transportation and communication infrastructure which serve as the back bone of the Indonesian domestic economy. This includes: improvement and constructions of new roads totaling 19,370 km, improvement of ports and harbors, and access to the phone line in all 32 provinces.

If fully implemented, improvement in physical infrastructures will greatly boost the domestic national economy and increase the Indonesia’s economic growth which still largely depends on domestic national economy rather than exports. However, how does the government finance this effort? Funding will remain one important key aspect towards the realization of any programs.

Furthermore, still another problem persists. At the start of 2009, the government announced a large stimulus package of Rp 71.3 trillion, Rp 11.6 trillion of which was set aside for infrastructure. However, only a quarter of this figure has been spent by the end of this year. Ministry of Transport and Ministry of Public Works both have a poor track record in disbursing funds.

Persistent problems in disbursing funds in recent years have meant that public spending has fallen short of projections. Stimulus and other planned infrastructure projects will only be effective if the government can overcome these problems. The nature of Indonesia’s financial management and budget disbursement procedures will continue to thwart the realization of any programs. Yet, there are no specific initiatives to tackle this constraint which have been announced by Yudhoyono’s administration.

Budget Deficit and Financing

Budget deficit has been classic news in Indonesia. It has been increasing ever since the year 2005, from 0.2% of the GDP up to 2.6% of GDP in the year 2009. On one hand, budget deficit could be used to purposefully stimulate the economy. However on the other hand, budget deficit requires government to find source of funds to finance all of its spending which couldn’t be covered by governmental revenue alone. President Yudhoyono and his team need to work together to find the best stable and healthy source of financing.

Increasing foreign debts should be one of the least preferred ways to finance the budget deficit. Indonesia’s foreign debt has been growing steadily from the year 2001, from USD 58.791 billion all the way to USD 65.7 billion this year. This will only increase Indonesia’s dependence on foreign aids.

The most preferred way is to increase foreign investments and export. The classical problem with Indonesia which always tends to distract investors away is the inadequate legal system, weak protection of private property rights, and the decentralized structure of the government all undermine policy towards foreign investment. President Yudhoyono has promised to improve the business and investment climate in order to thrive for both domestic and foreign investments. However until now, no specific action plan has been devised to further the investment climate in Indonesia, especially to attract more foreign direct investments to the country.

The prospect on export has not been good either. Indonesia’s export value within the period of January-October 2009 reached USD 92.03 billion, a 22.31% decreased from the same period last year. It has also been predicted that this decrease will continue as the external demand for the country’s exports will weaken. The rapid appreciation in the rupiah against the US dollar this year has also led to concerns about a loss of competitiveness for exporters and the possibility of currency volatility. Minister of Trade, Mari Pangestu, mentioned that Indonesian exporters are not concerned by the strengthening rupiah, but they are apprehensive about the speed of the appreciation and the volatility of the exchange rate. The government should work together to create a healthy climate for exporters and Bank Indonesia should maintain its policy in preventing volatility rather than targeting a specific level for the currency.

Challenges and Closing Remark

One of the biggest challenges for President’s Yudhoyono administration to achieve this first hundred days program is the direct attempt to discredit the Corruption Eradication Committee (Komisi Pemberantasan Korupsi, KPK) and the corruption allegation related to the liquidity funds to help Century Bank. These two cases have been preoccupying President Yudhoyono, Vice-President Boediono, and Minister of Finance Sri Mulyani and might have affected their performance in the first hundred days.

Another challenge lies within the bureaucracy. Indonesia is still lacking in a good institutional infrastructure. Bureaucracy still tends to be ineffective and inefficient to play its role as the agent of development. For many cases in Indonesia, the procedure has never been clear. The fund disbursement problem mentioned above shows one weakness within Indonesia’s bureaucracy.

There has been much hope in the new Yudhoyono’s administration. President Yudhoyono and his team must always remember that their mandate comes from the people. They should work together for the wellbeing and social equity of its people. They should serve the welfare and the greater good of all. It’s of the utmost importance for a good government to ensure the fulfillment of the basic needs of all citizens so that they could become respected members in the society. Thus the focus is no longer on what is demanded, but what is needed by the citizens. What are needed by the Indonesian people right now? Answering this question and the adoption of this attitude will be one of the key successes of President Yudhoyono’s administration.

the Indonesian's democracy as a role model in South-East Asia

Another interesting article on the argument of Indonesian's democracy as a role-model of democracy in South-East Asia, assuming that this South-East Asia region comprises of countries such as Indonesia, Singapore, Malaysia, Brunei Darussalam, Philippines, Thailand, Vietnam, Laos, Cambodia, Myanmar, and East Timor. Thanks to Kendrick who sent me the link to this article.

From one point of view, as an Indonesian myself, I was very happy to have a chance to choose those representing me in the legislative bodies and my future President. However there are still questions bugging me. Looking at the current political condition in Indonesia. Will this kind of democracy, with a big number of political parties competing for seats every time, will bring political stability and improvements to Indonesia's economic condition? Corruption is still rampant, which is still one and unsolvable problem for Indonesia. To some extent, Yudhoyono's government has done a good job in fighting corruptions and this effort has been taken seriously as well. Democracy alone can't feed people, it must be followed by improvements!

Economic growth has been stagnating in the level of 5 to 6% during the last 3 years and projected to decrease to the rate of 4 to 5% in the year to come. However this growth of 5% which was first achieved in the year 2005 was significant considering the slow economic growth experienced in the year of 1998-2004 as the impact of the financial crisis. The proportion of people lives under the poverty line has been reduced to 15.4% in the year 2008. Inflation rate jumped to 11% from 6% in the year 2007. But it's all just macroeconomics numbers (further statistics could be found here). In December last year when I went to Padang (this was the first time I went back to Indonesia after 1 year I spent overseas), I could feel that prices were different, it was just for me all too expensive!

However, looking at the big picture, Indonesia has managed well to get through the Asian financial crisis in 1997-1998 and to some extend the 2008-2009 global financial crisis. And yes, I am totally agree with Mrs. Clinton statement during her visit to Indonesia last year: “Indonesia has experienced a great transformation in the last 10 years,” and further she added, “If you want to know if Islam, democracy, modernity and women’s rights can coexist, go to Indonesia.”

Hoping and praying for the best for Indonesia, especially in this coming general election. Indonesia still needs a strong leader!

The Indonesian surprise

Apr 2nd 2009
From The Economist print edition

The world’s biggest Muslim country has changed from authoritarian basket-case to regional role model

THE Asian financial crisis of the late 1990s helped bring regime change in both the country where it started, Thailand, and the one where the devastation it wrought was most profound, Indonesia. At the time Thailand’s prospects for political stability seemed infinitely brighter. A cohesive nation whose army seemed to have withdrawn from politics, it adopted a new constitution, drafted in an impeccably consultative process. Indonesia, however, woke up in 1998 from the 32-year Suharto dictatorship with a dreadful hangover—blood on the streets of Jakarta, separatist conflicts on the periphery and a chaotic explosion of repressed political activity, some of it tinged with Islamist extremism.

Yet as Indonesia prepares for its third national parliamentary elections since then, to be held on April 9th, it has a fair claim to be South-East Asia’s only fully functioning democracy. Unfettered by Thailand’s draconian lèse-majesté laws, or the fierce interpretations of what constitutes defamation in Singapore and Malaysia, the press is vibrant and free. Unlike Thailand’s army, which returned to politics with a coup in 2006, Indonesia’s has stayed back in the barracks. And unlike the Philippines, where elections dominated by guns, goons and gold lead to dozens of murders, Indonesia has enjoyed a largely peaceful campaign. Indonesia’s corruption rates probably still top regional charts, but the government of President Susilo Bambang Yudhoyono has made strides in attacking it.

Moreover, pluralist politics and a decentralisation of power have helped bring Islamist politics into the mainstream. Jemaah Islamiah, the local al-Qaeda franchisee, responsible for the bombing in Bali in 2002 and other attacks, has been marginalised: its most dangerous fanatics are in jail or hiding in the jungles of Mindanao in the southern Philippines. No attacks on foreign targets in Indonesia have been recorded since 2005. The above-ground Islamist parties have had to become less vehement to gain power. About two-fifths of local elections have been won by coalitions forged between Islamist and secular parties. In the two other huge Asian Muslim-majority nations—Pakistan and Bangladesh—extremism gained ground in the early years of this century in part because of the suppression of political competition.

Of course Indonesia is not a paragon of Jeffersonian democracy. The parties contesting the election (see article) are doing so largely on the basis of their leaders’ charisma, and the quality of the packed lunches and other handouts they provide at their rallies. And those leaders are mostly people who thrived under Suharto, too, testifying not just to the elite’s tenacious staying power, but also to the lack of any accountability for the abuses of the Suharto years. One is the former army chief, Wiranto, who was indicted by a United Nations-backed tribunal for his role in the violence that surrounded Indonesia’s withdrawal from Timor-Leste in 1999. Another, Prabowo Subianto, is the divorced husband of one of Suharto’s daughters, and a former special-forces commander whose human-rights record is such that he cannot get a visa to America.

In the short term, however, the biggest difficulty facing Indonesian democracy is the election itself. Despite the experience of the previous votes in 1999 and 2004 it was always going to face huge difficulties: a voting system of Byzantine complexity; constantly evolving rules; the logistics of organising polls in an archipelago of 17,000 islands and 240m people; and the apparent ineptitude of the election commission. A new one was added, however, with the exposure of the apparent rigging of a recent election for a provincial governorship, in East Java, in favour of Mr Yudhoyono’s Democratic Party.

The scale of the errors uncovered—over a quarter of the names on the voters’ list were fictitious or repeated—seems too large for it to be simply an instance of incompetence. But instead of helping the investigation, the police in Jakarta intervened to downgrade it and sideline the local police chief responsible. Since then errors have been detected in voters’ lists elsewhere. This makes it even more likely that many losing candidates in the election will challenge the results. Indonesia’s love affair with democracy could enter a rocky patch.

Pricking the pretext of “Asian values”

It should, however, be no more than that. The manipulation was uncovered, publicised and is being exploited by opposition candidates: the system worked. As governments elsewhere in the region retreat into repression, Indonesia can still be proud of its young but vibrant pluralism. Although Malaysia’s Mahathir Mohamad and Singapore’s Lee Kuan Yew did most of the talking about the “Asian values” that justify authoritarianism, Suharto was their role model and proof. Indonesia is now an altogether different sort of model. Like India it has shown that democracy can work in huge, diverse and poor countries. And like Brazil, Taiwan and South Korea, it has shown it does not need generations to strike roots.