The momentum to remove fuel subsidies

Wednesday, April 04, 2012

The Jakarta Post

http://www.thejakartapost.com/news/2012/04/04/the-momentum-remove-fuel-subsidies.html

If Bank Indonesia (BI) cuts three zeros in the Indonesian rupiah, the nation’s consumers would lose confidence in our currency. For many old enough to remember, it would be the sanering or slashing of the currency’s value of 1959 all over again.

If we handle the redenomination quickly, these pains can be minimized. But for the redenomination to work, BI must also expedite the redenomination to maximize the momentum gained from the potential elimination of fuel subsidy.

The Law on Rupiah Redenomination is being debated by the central bank, the Finance Ministry and the House of Representatives, and is scheduled for completion by the end of the year.

For the past several months, BI has been involved in a media campaign to promote the concept of its redenomination policy. This rigorous effort is to ensure that the launch of the ambitious program goes unhindered.

Should we fear the loss of zeros, or should we focus on a basic understanding of what the redenomination policy is? On multiple occasions, BI has emphasized the difference between the redenomination policy and that of the sanering in 1959.

Sanering is a term taken from Dutch that refers to financial devaluation entailing a reduction in the value of the currency compared to the goods and services produced. But many Indonesians may not understand the distinction between sanering and redenomination.

The redenomination policy involves a change in the value of the rupiah, from thousands into just ones. What happens to the economy when such a policy goes into effect? The change would implicate a lower nominal GDP value because of the change in the rupiah, but the real GDP does not change. The real goods and services produced by the economy remain the same.

The redenomination policy is separated into four stages, namely preparation, dual label procedures, and the removal of old currency. The fourth stage involves finalization to ensure that none of the old currency remains in the financial system. The program is set to span from 2011 to 2022, which is a substantially long period of time for the policy’s implementation.

The central bank during the dual label stage, will issue new rupiah notes that show three slightly faded zeros. A new bill, such as the Rp 100,000 bill, will more likely be seen as Rp 100 because of the three faded zeros written on the bill. The old rupiah note remains on the market before the central bank withdraws it in the third stage.

It is the long, drawn-out process that remains the biggest weakness of this policy. The redenomination policy is not a new policy. Turkey introduced a similar measure in 2005, eliminating six zeroes from the old Lira.

The efficiency of the redenomination is what differentiates Indonesia. In Turkey’s case, the elimination of six zeroes occurred over one year. People were encouraged to exchange their old currency within a year’s time. Some would argue that Indonesia’s large population would require a longer implementation period, but I would argue otherwise. With eleven years of implementation, the amount of resources devoted to preserve this policy would overcome the qualitative good that it projects.

Why do we need the redenomination policy? The central bank can choose redenomination for political and economic reasons. The most common economic reason is hyperinflation or extremely high inflation that has made the existing currency almost worthless. Indonesia has encountered high inflation, especially during the 1997 Asian Financial Crisis, and is expected to face inflationary pressures as a result of the removal of fuel subsidies over a span of a few years’ time. Each time the government removes a portion of the subsidy, ripple effects cause price increases in distribution and in the prices of normal goods that depend on transportation costs. This effect is very crucial given Indonesia’s geography.

Recent tension in the Middle East has caused an increase in world oil prices. With subsidies in Indonesia reaching a staggering Rp 137.4 trillion, mainly for fuel, the government has been forced to consider removing part of the fuel subsidy, causing price adjustments. Arguably, unless the fuel subsidy is eliminated, the effort to redenominate the rupiah will be in vain.

From a political standpoint, the redenomination policy will create greater confidence in the Indonesian rupiah and efficiency in managing its bank notes.

Redenomination is not the sole answer to the problems of public finance in Indonesia. The central bank should focus on its contradictory monetary policy as a way to reduce the money supply and as a means of attaining better appreciation for the rupiah.

The recent introduction of government bonds (SBI) has enabled the government to intervene monetarily in the economy. Better monetary policy should allow us to avoid mourning the losses of zeros in the Indonesian rupiah in the future.

The writer is currently pursuing Master of Public Policy at Harvard University, John F. Kennedy School of Government, Cambridge, Massachusetts, US.

Jakarta election, the true test of Indonesia’s democracy

Thursday, March 22, 2012

The Jakarta Post

http://www.thejakartapost.com/news/2012/03/22/jakarta-election-true-test-indonesia-s-democracy.html

The registration of candidates for the Jakarta governor and vice governor posts was officially closed on Tuesday. One thing is sure: The nomination process is an important signal of growing democracy in Indonesia.

Last week, the Golkar Party announced a coalition with the United Development Party (PPP) and the Prosperous Peace Party (PDS) to nominate incumbent South Sumatra Governor Alex Noerdin for the race. The Golkar Party succumbed to Noerdin’s extraordinary feat in leading South Sumatra during turbulent times, including his effort to make the province a successful host of the Southeast Asian Games last year.

But two days before the closing date of registration, all eyes were on political parties, including the Democratic Party (PD) and the Prosperous Justice Party (PKS), which were the only parties able to designate a gubernatorial candidate without forming a coalition.

One day before the deadline, the split between young Turks and the older generation at the PKS was resolved. Former People’s Consultative Assembly (MPR) speaker and PKS co-founder Hidayat Nur Wahid prevailed over Jakarta legislative council deputy speaker Tri Wicaksana, the preferred candidate of the PKS younger generation.

The PKS named National Mandate Party (PAN) executive Didik J. Rachbini as Hidayat’s running mate.

In a matter of hours, two other candidates entered the race. President Susilo Bambang Yudhoyono’s Democratic Party declared it formed a coalition of eight parties to nominate incumbent Governor Fauzi Bowo.

A coalition of the Indonesian Democratic Party of Struggle (PDIP) and the Great Indonesian Movement (Gerindra) nominated Surakarta Mayor Joko Widodo.

What do these four candidates nominated by the political parties have in common? All the parties have simply adopted a strong, top-down approach, in which the elites force their will on constituents.

The political intensity in the race for the governor has defied the flourishing democracy in Indonesia. The Economist Intelligence Unit, a subsidiary of The Economist magazine, ranks Indonesia 60th out of 167 countries on its world democracy index.

Why is democracy so important?

Mancur Olson said that “in an autocracy, the autocrat will often have a short time horizon, and the absence of any independent power to assure an orderly legal succession means that there is always substantial uncertainty about what will happen when the current autocrat is gone”. Olson’s elaboration defined the norms of democracy compared to the authoritarian counterpart.

Olson’s analysis presupposes democracy as a necessary part of a system that creates certainty and sustainability in governance. The policies on transportation, workers’ rights and minimum wage are among a few that require sustainability over a long period of time. Each of these policies is crucial for a better Jakarta. Without a sustainable leadership and democracy, neither of these policies will last long.

The bitter truth is that Jakarta replicates of Indonesia’s flawed democracy for three reasons.

First, the nomination of each candidate was not conducted in a clear and transparent manner. The nomination should have been preceded by primaries or a party convention to nominate best candidates.

Constituents within the party should vote for their desired candidate. The Democratic Party should have given leeway to decide between Fauzi or Nachrowi, who chairs the party’s Jakarta chapter.

Candidates that were perceived as having strong support, such as the chairman of Golkar in Jakarta, Prya Ramadhani, Golkar lawmaker

Tantowi Yahya and Alex should have fought for a space on the ticket.

The same should have been the case in the PDIP-Gerindra coalition and the Muslim-based PKS. The primaries selection in party A will consolidate the effort to withstand the challenges of party B.

Internal consolidation is important for the sustainability of democracy in Indonesia. Bowing to nominations made by party chairmen or powerful boards of patrons is authoritarian and defied the will of rank-and-file members.

Second, each candidate should have been exposed in a fair debate on their ideas and platform for Jakarta. Without the division of political ideology nor access to party primaries, voters do not have access to information to inform their decision. Separations between the middle class, elites and lower-wage workers are not clearly defined by a single party.

Without a debate, candidates for the executive posts are unable to present themselves in ways that would benefit their credibility in the eyes of voters. Without an argument between the candidates, constituents are unable to clearly define what they are seeking from the aspirants.

Third, the constituents should have been given an opportunity to hold a dialogue with candidates before the definite nominee was selected. Feedback resulting from dialogue between candidates and constituents is important to create stronger bonds between the candidates and their promises.

Jakarta is a symbol of a progressive democracy in Indonesia. If we are unable to strengthen and improve the flawed democracy in Jakarta, then the Indonesia’s overall democracy is at stake.

The writer is a graduate student at Harvard University’s John F. Kennedy School of Government.

A contemporary international affair that I find puzzling or do not fully understand is the issue of U.S. withdrawal of funding from the UNESCO. In October 31, 2011, Palestine won full membership in UNESCO, but the move cost the UNESCO one-fifth of its funding through the withdrawal of U.S support. The Palestinian bid for UNESCO (membership), requires approval by two-thirds of the agency’s General Conference, passed by a vote of 107 to 14, with 52 abstentions. The United States provides UNESCO with more than $80 million a year, covering about 22 percent of its budget.

The UNESCO objective is to create the conditions for dialogue among civilizations; cultures and peoples, based upon respect for commonly shared values. It is through this dialogue that the world can achieve global visions of sustainable development encompassing observance of human rights, mutual respect and the alleviation of poverty.

The phenomenon in question is important because the primary mandate of UNESCO is to create the condition for dialogue among civilizations; cultures and peoples, based upon respect for commonly shared values. The U.S. withdrawal caused a large rift in ongoing UNESCO activities. The Headquarter and country office have tried to adapt to the sudden budget change by eliminating staff through termination of contract, and even closure of selected country office. The sad story, most of the UNESCO activities are intended for cultural preservation and not related with the Israel-Palestinian conflict. The political move of U.S. is speculated on the strong support for Israel and Israel’s disagreement of Palestinian bid for UNESCO membership. This argument deviate from the primary issue that the Palestinian (territory) is arguably one of the richness areas with culture heritage. The conflict between the Israel-Palestinians has caused cultural damage beyond comprehension. The Palestinian full membership in UNESCO should be use as a platform for dialogue between the Israel and Palestinian, and the U.S. should support this dialogue to create stability in the Middle East.

Killing to Save Lives? Moral Discourse of Targeting a Military Facility With Collateral Damage

In this paper, I will argue that hitting my enemy‘s military facility in region A in the context of war, despite causing a lot of foreseen collateral damage to civilians in that region, and leading to terror, is morally permissible.

The only alternative way to achieve our goals is to intentionally kill a few civilians in region B, That, however, will cause terror in few others.

The action of hitting your enemy’s military facility causes two distinct impacts, which I shall call collateral damage and terror inflicted. Collateral damage is derived from the word collateralis, from col-, “together with” + lateralis (from latus, later-, “side”) and in this context is specifically human casualties as an unintended outcome of an action. Terror is a war method first defined by Aristotle: ‘the first and end (of tyrants) is to break the spirit of their subjects’ and developed through methods of ‘random murder of innocent people’¹.

Suppose the military facility that we are hitting is manufacturing weapons of mass destruction and the harm caused by this facility is so deadly that it causes civilian casualties and terrorizing the population. This facility used by the leaders of the country as a tool for tyranny of the majority in oppressing the minority of the country. Would destroying such a facility be considered morally impermissible? I would argue otherwise. The intention of hitting the military facility in region A is to destroy weapons of destruction. Failing to destroy the enemy’s military facility would not only lead to our own military casualties but sometimes also civilian casualties. Destroying the facility could, in fact, result in fewer civilian casualties than allowing it to exist. The long-term effect of the facility stand would be more destruction and greater collateral damage from the product this facility is producing. Proponents of non-consequentialism would argue that collateral damage even if known and compensated for, is less serious than intentionally killing civilian.

The intrinsic value of killing fewer civilians in region B and the terror caused should be defined distinctly to allow moral permissibility. And hitting the enemy’s military facility even with careful planning to avoid innocent bystanders, might still resulted in casualties. That hitting military facility in region A is merely foreseen to cause a lot of collateral civilian damage and terror in that region should not be a basis to choose killing civilians in region B.

Further, having a military facility in enemy possession would ultimately cause fear to our own citizens. And its very existence would enable the enemy to instill terror in us. Thus, our action in attacking the military facility would respond to the terror that the facility is causing to our own citizens. Hitting the enemy‘s military facility in region A is intended to destroy the military plant to the point that the enemy is unable to rebuild the plant in a period of time sufficient to substitute its intrinsic value. Hitting the military facility in region A is why we act, even though causing collateral damage and terror is morally permissible.

The large nature of terror inflicted from hitting the military facility would compensate for the terror presence of the military facility. By doing so, we would demoralize the enemy and lead to an early end to the war. Permitting the enemy to keep the military facility would only prolong the fear of the people. Proponents of bombing in region B have also agreed that killing civilians as a means of ‘military purpose’ is impermissible.

The destruction of military plant can also be analyzed with the double doctrine effect (DDE). In bombing my enemy’s military facility in region A, the good achieved is the removal of the military facility, while the foreseen evil is the civilian casualties². Bombing the military facility contributes to the civilians killed, but they are not the intended targets. In accordance with Walzer’s modification of the principle of double effect, the bombing of region A should be done in such a way that it reduces civilian casualties, even though some casualties are known to be inevitable. If carried out in this way, the bombing of region A would be morally permissible.

Proponents of bombing region B would agree that a smaller number of civilian casualties is better and the intention of the bombardier in region B is no different in any respect from that of a good bombardier in region A. But, I would argue otherwise. Bombing a military facility and intentionally killing a few civilians are very different in its nature.

Word Count: 784

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¹ Walzer, Michael, page 198 ‘Just and Unjust Wars’, Basic Books, New York;

² Walzer, Michael, page 155 ‘Just and Unjust Wars’, Basic Books, New York;

Hi everyone, I am following on queries asking for more submission. However, I am in a Mid Term exam period. Should post more afterwards. Cheers, Ari

An interesting book that I read, a postulate  towards several deduction. They are:

Microeconomics Propositions

1. Pollution taxes or marketable pollution permits are a more economically efficient approach to pollution control than emission standards (93% agreeing);
2. Tariff and import quotas usually reduce general economic welfare (93%);
3. A ceiling on rents reduce the quantity and quality of housing available (93%);
4. Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal dollar value (84%);
5. The social security payroll tax is borne almost entirely by workers, not their employers (83%);
6. Economic evidence suggests that there are too many resources in American agriculture (73%);

The Teaching assistant, Mr. Paul Julian of FAS Harvard, has been kind enough to resent the summary. Mine was pretty far off, touché for people who has more opinions on Euthypro case.

Sample Summary of Plato’s Euthyphro

This passage opens with Euthyphro claiming that pious things are those that are loved by all the gods (with “things” presumably including acts, attitudes, characters, and so on).  Socrates responds that Euthyphro’s claim admits of two interpretations of the relevant causal relationship.  Either (1) pious things are loved by the gods because those things are pious, or (2) it is the gods’ love of those things that makes those things pious.  Socrates argues by way of several examples that a thing can be in the state of being loved by the gods only through the gods’ act(s) of loving it, and Euthyphro agrees.  Euthyphro also agrees with Socrates’ next claim: the gods love pious things because those things are pious, i.e., in response to their recognition that those things are pious.

But if a thing’s being pious were really identical with its being in the state of being loved by all the gods, as Euthyphro claimed at the outset, then we have a contradiction.  For this claim commits Euthyphro to the view that the gods’ act(s) of loving a thing are what make that thing pious (Socrates calls this theophiles), but he has also assented to the claim that the gods’ recognition of a thing’s piousness is what makes them love it (Socrates calls thisosion).  And these are clearly two very different claims.  Socrates argues that the way out of this mess is to abandon Euthyphro’s initial identity claim.  The most that such a claim could show is that pious things all share the particular feature of being loved by all the gods.  But this is just to point out a mere attribute of pious things and not to tell us anything informative about the essence or nature of piety itself, i.e., about what makes a thing pious.  If Socrates’ argument is correct, then our inquiry into the nature of piety (or, in more contemporary terms, into the nature of goodness or rightness) can, and indeed must, proceed independently of any claims about what the gods love (or, again in more contemporary terms, what God has ordained, commanded, etc.).

Mr. President, We Need a 10-Year Plan

America is collapsing. Shovel-ready projects won’t cut it, says Lawrence Summers, former treasury secretary.

Newsweek

http://www.hks.harvard.edu/news-events/news/commentary/obama-jobs-plan

This weeks discussion on How big is the Government? to remain effective?

The case study of the US Government current public spending in FY 2011

All answers are depicted by billion USD and % share towards the GDP

1. Using the standard measurement of government expenditure as share of GDP,
   1. Assumption undertaken i): That the OMB report was issued on February 14, 2011 whereas the CBO report was issued on August 2011. The OMB report can be seen here

      Fiscal Year 2012 budget documents can be accessed for free at:
      http://www.gpoaccess.gov/usbudget/fy12/

      This will set foot towards a more fix outlook towards the changes happening in a period of 0.5 years (CBO report more updated that OMB report);

   2. The CBO report can be accessed here:

   3. This document and supplemental material can be accessed for free at:
      http://www.cbo.gov/ftpdocs/123xx/doc12316/08-24-BudgetEconUpdate.pdf

   4. Assumption ii): Both OMB and CBO agree that the growth of Nominal GDP is accounted are roughly 4.0% (4.0 vs. 3.9) and the Real GDP (2.7 vs. 2.4) changes are at 2.7%. The base number given through the OMB has shown very optimistic values;
   5. Assumption iii): The inflation are relatively stable for the past 15 years (figure 2-11 CBO report);
   6. Assumption iv): The CBO was issued in August 2011, therefore we assume that this has include the funding of ‘act’ or ‘bill’ that was issued from January to August 2011;
   7. How large would you estimate the public sector in the United States to be in fiscal year 2011? The answer is 25.3% vs. 23.8 % (OMB vs. CBO). With a GDP estimate of 15,080 vs. 15,238. With the assumption that the Nominal GDP will touch the 15,240 (OMB report). Therefore, I would put the basis of numeration for GDP as 15,238 to show more significant value.
   8. What would you include and exclude and why?

I would include the discretionary policy for both the security agencies, and non security agency amounting to a propose 10% to further add the value from 3,819 + 20.92 = 3939.92;

I would include the ‘American Jobs Act’ costing 450, as an example of how the President would still need discretionary policy (funds) to be available to him (there is an excess of 1416 – 1279.9 for his discretion for contingency operations);

1. What additional information would make this estimate more accurate?

i.     I would include the additional debt concur by the US Government. The current debate of the ‘debt-ceiling crisis’ with debt surpassing the GDP is not well depicted in both reports (Budget Control Act 2011). The OMB vs. CBO report has only depicted 72% vs. 67.3%. This figure can be found as the Debt held by the public. The difference in the ratio has caused the deficit of the FY 2011 to be inaccurate. It is seen for FY 2011, the deficit ratio to be 10.9% vs. 8.5% of the overall GDP. I would argue instead that the current public debt has surpass the GDP;

ii.     To also include the outlook given by the discretionary policy for both the security agencies, and non-security agency worth for a grand total of 1279.9. Presuming that these values should account for the changes in actual spending compared to actual in FY 2010 (from 1257.6 vs. 1279.9) is worth roughly 1.02%, , I would argue that additional value of 1.02% should be added to the FY 2011 as a historical approach to address the various situational condition;

Conclusion, the Final spending should also include State and Local expenditure and also Tax expenditure.

Amazingly the final value of consolidated spending (ON/OFF) is at 25% + State and local expenditure at 10% and Tax Expenditure is at 7% amounting to 43% in all.

A very high number for a rich income country.

The Discussion on Euthypro

The argument lies on the conflicting definition that what all the gods’ love is pious and holy, and the opposite, which they all hate, is impious. The purification of this argument is on the definition that all that seems to be good are good and all that seems bad are bad. The definition struck its moment of difference during the definition of ‘carrying and being carried’. The writer argues that, the state of being loved follows the act of being loved, and not the act the state. This two phenomenon questions the state of a situation towards the act the state, and the definition of the premise becomes questionable.

The argument has the flaws when the writer differentiate the things that seems good, can only be uphold when the actors involved are doing the good, not merely in a state of good. The writer has also questions the essence of holiness, as not only a part of attribute but also on the nature of it. The conclusion of the argument is, we will always have difficulty in defining what is good through the definition of holiness or pity (morale judgments), when the truth is, the boundaries given by the impiety is not clear at all.

To view the complete discussion on Euthypro, please follow this link: http://classics.mit.edu/Plato/euthyfro.html