Towards a Healthy Indonesia?

Abstract

During his first presidential term, Joko Widodo increased expenditure on, and the coverage of, several social protection policies, including the conditional cash transfer program. These policies began in the aftermath of the 1997–98 Asian financial crisis and have proliferated in recent years. This Survey will examine these policies, paying particular attention to implementation problems, including effective targeting through the construction of a unified database. It will also examine both food policy and broader health policy issues. It is widely agreed that health problems, such as those relating to early childhood development, must be addressed in Indonesia in a wider context, including through the provision of clean water and sanitation facilities, food security, and social assistance. The Survey will also examine recent discussions of trends in inequality and poverty, several of which claim that inequality has been increasing. Using recent figures published by Statistics Indonesia, it is argued that expenditure inequality has in fact been trending downward in recent years.     

Borrower Targeting under Microfinance Competition with Motivated Microfinance Institutions and Strategic Complementarity

We examine how increased competition among motivated microfinance institutions (MFIs) impacts the poorest borrowers' access to microfinance. We find that competition depends on inequality, technology, and the possibility of double‐dipping (borrowing from several sources). Without competition, even a motivated MFI may lend to the not‐so‐poor in preference to poor borrowers. If double‐dipping is feasible, competition may encourage lending to the poor. The presence of double‐dipping is critical for MFI competition to have a positive effect. When double‐dipping is feasible, MFI coordination may worsen borrower targeting whenever inequality is intermediate. We discuss policy implications dealing with double‐dipping, MFI coordination, and competition.     

Rice Marketing in Indonesia: Methodology and Results of A Research Study∗

This paper summarises the methodology, results and lessons of a research program undertaken between 1989 and 1991 on the private rice marketing system in Indonesia. A method of linked interviews, starting from farmers, gave results in the two main areas of seasonal volume flows and competition in rice marketing channels. Sample survey results were used to interpret seasonality in the aggregate rice market It is concluded that price stabilisation remains a valid policy objective in Indonesia, but that targeted interventions could substantially reduce the cost of achieving this goal.

     

Spatial analysis of competition among local governments and the price of land: the case of Zhejiang Province

Abstract

This empirical study focuses on competition between local governments as they strive to attract companies through the auction of land use rights. In the literature on competition between local governments, the focus has tended to be toward growth rates based on performance evaluation or tax rate-based competition for attracting companies. In China, the property tax system is still underdeveloped and local governments cannot independently set tax rates. Therefore, this study focuses on a type of ‘dumping’ activity by which local governments auction land use rights to attract industrial companies and empirically test this hypothesis using the spatial lag model.     

FIFTY YEARS OF TRADE POLICY IN INDONESIA: NEW WORLD TRADE,OLD TREATMENTS

Indonesia's trade policy has evolved over the last 50 years. It has been influenced by the country's level of development and the conflict between openness and protectionism; external developments, such as commodity booms and busts and increased competition; and international commitments, whether multilateral or regional. As a result, trade policy has often been ambivalent and ineffective. Given that Indonesia has undergone various transformations and that the world is a different place from what it was in 1965, the country needs to take a more pragmatic and forward-looking stance. Trade policy needs to be part of a comprehensive strategy to improve competitiveness and diversify exports. If Indonesia is to be part of the new paradigm, where the production of goods and services is based on production networks and global value chains, its policy focus will need to shift from protecting and favouring sectors to promoting trade and industrial policies that encourage the flow of goods, services, and people.     

WHEN DO VERTICAL RESTRAINTS HARM COMPETITION? THE ECONOMICS‐BASED APPROACH AND ITS APPLICATION IN THE BATSA CASE

An “effects‐based” or “economics‐based” approach to competition policy requires a theory of harm that causally links a business practice and its allegedly anti‐competitive effects and also weighs anti competitive effects against the pro‐competitive effects of the practice. This implies a shift away from per se prohibitions of certain practices towards case‐by‐case analysis – a move that has been hotly debated, especially in Europe. Using a case study of the recently concluded British American Tobacco case, we study the core features of an effects‐based approach to vertical restraints. We find the approach followed in the British American Tobacco South Africa case generally consistent with an effects‐based analysis, but highlight some limitations.     

China's Emergence and Its Implications for Europe's Economies

Abstract

This paper assesses how the competition between China and the EU in export markets has affected the trade performance of European countries. It first draws on a comparison between Germany and France before turning to discuss the economic and social impact of China's internationalization on Europe's economies. The results suggest that even in the recent years when China has gained prominence, it should not be blamed for more than half of the measured effects for emerging countries.     

Subnational institutional environment,scale competition and MNEs’ ownership levels in transition economy: evidence from China

Abstract

This paper shows that the effect of market scale competition on the ownership levels of foreign-funded enterprises is conditioned on sub-national institutional environment in China. Analysis is based on the idea that multinational enterprises subject to the dual pressures of institutional isomorphism and competition in the host country. The provincial panel data from 2001 to 2012 is used for empirical tests. This study indicates that the weaker the legal property rights protection and legal enforcement of contracts, and the higher the opening up, the more the large foreign-funded enterprises decrease their ownership levels, whereas the negative moderating effect incurred by the reduction to government intervention in business is limited significant.     

Recollections of My Career

Editorial Note:Professor Sumitro Djojohadilcusomo is one of the principal architects of Indonesia's post-independence economic policy. He has held key economic portfolios in both the immediate post-independence era and in the New Order. In addition, as Professor of Economics at the University of Indonesia, and as a tireless lecturer and writer on economic issues, he has been instrumental in shaping the education of several generations of economics students in Indonesia, many of whom are now in key government positions. At the end of August, Professor Sumitro generously agreed to be interviewed on his long career by two members of the BIES editorial board, Anne Booth and Thee Kian Wie. In preparing this interview for publication, the editors have tried to preserve Professor Sumilro's own words to the greatest extent possible; his lucid and entertaining remarks are thus reproduced with a minimum of editing. The interview began with a question to Professor Sumitro about his early training in economies.     

Assessing the performance of inflation targeting in East Asian economies

This paper examines the implementation and performance of inflation targeting (IT) in four East Asian emerging market economies: Indonesia, Korea, the Philippines, and Thailand. It also examines monetary policy in Malaysia, a country that has not adopted IT. The study estimates policy reaction functions to test the links between the adoption of IT and use of a monetary policy rule. The impulse responses of prices to a monetary policy shock are also estimated to identify monetary policy impacts on prices. The findings on the monetary policies of the five economies can be summarised as follows. Korea has taken an inflation‐responsive and forward‐looking policy stance under inflation targeting, which has had an effect on the stability of prices. Indonesia and Thailand have conducted inflation‐responsive but backward‐looking policy stances, which have had no impact in terms of price stabilisation. The Philippines (which adopted IT but under a pegged exchange rate regime) and Malaysia have neither followed inflation‐responsive rules nor had policy impacts in terms of controlling inflation.     

Survey of recent developments

In the 15 years since the Asian financial crisis, the Indonesian economy has benefited from a stable macroeconomic policy framework and prudent macroeconomic policy settings. Economic growth has been solid, inflation has been contained and government finances have strengthened. Indonesia weathered the global financial crisis better than many countries, and it subsequently benefited from the low global interest rates resulting from highly stimulatory monetary conditions in many advanced economies, especially the US.

In the middle of 2013, however, speculation on when the US Federal Reserve would begin to unwind its program of quantitative easing saw global interest rates jump. Short-term capital flowed out of Indonesia, causing the stock market to fall, the currency to depreciate and interest rates to rise. On top of this, GDP growth appeared to be slowing, the trade balance worsening and inflation increasing. In late September and October, the failure of the US to raise its legislated debt ceiling led to speculation that it might fail to meet some of its debt obligations, which fuelled financial-market volatility.

It is yet to be seen whether the Indonesian economy and its financial markets are sufficiently flexible to make a smooth transition to the new external reality. The policy tools available to the government to deal with the short-term economic challenges are limited: it introduced an economic policy package in August, and Bank Indonesia (BI) raised official interest rates in August and September, following two increases earlier in the year.

These pressures from global financial markets have drawn attention to the need for further structural reforms in Indonesia, including those aimed at deepening financial markets, strengthening financial-sector supervision, freeing up trade and encouraging competition, and maintaining the government’s revenue base in the face of falling commodity prices. While some reforms, particularly in financial-sector supervision, are already in train, it may be difficult for Indonesia to make serious gains on longer-term economic reforms before the 2014 presidential elections.     

Regional Competition in China under the Price Distortion of Construction Land: A Study Based on a Two‐regime Spatial Durbin Model

This study examines regional competition in China by considering the spatial correlation and spillover effect of construction land price distortion using a two‐regime Spatial Durbin Model to investigate the patterns and trends of the competition between 285 cities in China from 2006 to 2015. The study finds: (i) price distortion of construction land is a common phenomenon but the distortion index generally shows a declining trend; (ii) regional competition through construction land price distortion shows a weakly intensified pattern, although the competition patterns in the four regions of China varied; and (iii) the intensity of competition between regions was lower during the 12th Five‐year Plan compared to the 11th Plan. The intensity of competition between cities was also lower inside than outside urban agglomerations. These results provide policy implications for remedying the price distortion of construction land and promoting regional coordinated development.     

Bankers on the Board,Market Competition,and Conflicts of Interest

Abstract

Bankers on the board are expected to act as a fund-raiser and to help lowering financial costs, but they can impose conflicts of interest between shareholders and creditors. We empirically analyse the impact of banker-directors on corporate leverage and investment, using Korean firm data during the period from 2000 to 2012. Bankers on the board turn out to play different roles depending on market competition and macroeconomic circumstance. In less competitive industries where banks are less concerned about financial distress as a creditor, the presence of bankers on the board has higher leverage and more active investment, which can align with the interest of shareholders. However, in more competitive environment where firms are more concerned about financial distress and external financing, bankers on the board do not always increase leverage and investment, which can be divergent from the interest of shareholders.     

我国中小企业战略变革研究

改革开放以来随着中国共产党对私营经济政策的变化,我国中小企业已得到迅猛发展。文章从建立公平竞争的自由市场环境,构建有效的企业制度,培养和提升企业竞争力,构建诚信体系,保护环境和实现可持续发展几方面来阐述我国中小企业的发展战略。     

Perspective on Local Governance Reform in China

I. Introduction The difficulty of improving local governance in contemporary China has recently aroused a great deal of attention from both academics and policy-makers. Among the many issues needing to be addressed, inefficiency in the work of local administrative agencies andshortcomings in the delivery of public services rank as the most significant. Many Chinese farmers, especially those in less developed regions, have been plagued by excessive tax burdens, insecure land property rights an…     

Survey of recent developments

The economy continues along the general trajectory described in recent Surveys. Growth is picking up, led by consumption but restrained by investment. Inflation has fallen well below Bank Indonesia's current target rate. Most interest rates have followed suit, including key lending rates. Bank lending has been expanding at around 20% p.a. for the past year or so, and international portfolio investors are again interested in Indonesia. But a scare in the mutual funds industry and scandals at two state banks remind that trouble still simmers just below the surface in the financial sector.

Fiscal policy continues its conservative stance. The government is likely to have achieved its 2003 deficit target, and the budget for 2004 envisages further narrowing of the deficit. Still, the deadline for achieving a modest budgetary surplus has slipped two years, to 2006. Draft amendments to the income tax law foreshadow a probable reduction in corporate tax rates, increases in personal rates, and removal of certain key exemptions. Proposed administrative changes would give tax officials significantly greater powers of investigation and prosecution; observers foresee increased scope for extortion by unscrupulous officials. Monetary policy has become increasingly expansionary, given the central bank's desire to support economic recovery and its success in driving inflation down. This is reflected in quite rapid base money growth and sharp falls in policy interest rates, notwithstanding some efforts by Bank Indonesia to slow their decline. Trade policy has been dominated by increasing signs of resurgent protectionism, including a shift away from a transparent tariff regime to rent-generating systems of licensing.

On the political front, opinion polls in advance of the national elections suggest a considerable shift in the parliament, away from PDI-P in favour of Golkar. The size of this shift will be critical in determining the choice of candidates for the subsequent presidential elections. At present, Megawati Sukarnoputri remains the front-runner, but almost any combination of major parties could still form a coalition and make a credible run at the presidency.

With elections looming, little further progress can be expected on the economic policy front in 2004. In these circumstances, the focus for progress shifts to a politically independent Bank Indonesia. With strong policies in its areas of responsi-bility—inflation, monetary policy and financial sector development—further progress is achievable even during an election year. This would lay a solid foundation for robust economic recovery, hopefully policy driven by the next administration.     

An Economic Analysis of Audit and Nonaudit Services: The Trade‐off between Competition Crossovers and Knowledge Spillovers*

In this paper, I present a model in which both markets for audit services and nonaudit services (NAS) are oligopolistic. Accounting firms providing both audit services and NAS will employ oligopolistic competition in each of these markets. In addition to auditors' gaining “knowledge spillovers” from auditing to consulting or vice versa, oligopolistic competition in one market will influence the counterpart in the other market ‐ what I call “competition crossovers”. Although scope economies due to knowledge spillovers (for example, cost savings) are always beneficial to auditors, such benefits can entice accounting firms to adopt strategies (for example, price reductions) to compete aggressively in the audit market so that some, or all, firms become worse off. A trade‐off arises between these two economic forces in the two oligopolistic markets. Given the trade‐off between competition crossovers and knowledge spillovers, accounting firms may not reduce their audit prices, even though supplying NAS enables firms to decrease auditing costs — a nontrivial impact of oligopolistic competition in two markets on audit pricing. The empirical implication of my results is that because of competition‐crossover effects between the auditing and consulting service markets, finding empirical evidence for knowledge‐spillover benefits is likely to be difficult. Control variables for “audit‐market concentration” concerned with competition‐crossover effects and “auditor expertise” concerned with knowledge‐spillover benefits should be included in audit‐fee regressions to increase the power of empirical tests. With regard to policy implications, my analyses help explain the impact of the Sarbanes‐Oxley Act on “market segmentation” and, hence, the profitability of accounting firms.     

Ex Post Evaluation of Enforcement: A Principal-Agent Perspective

Summary  This paper discusses a number of methodological challenges that ex post evaluation of competition policy faces. We argue that imprecise measurement and simplified analysis not only lead to unreliable results, but also trigger behavioural responses by competition authorities. Because evaluation works as an incentive scheme, it has an immediate impact on the way agencies operate. Faced with simplistic assessment, authorities may be tempted to be overly interventionist, to spend too many resources and to ignore relevant information. Therefore, a careful design of methodologies is important to ensure that ex post control does not bring about the very ills it is supposed to cure. The views expressed are those of the authors and do not necessarily reflect those of DG Competition or the European Commission.     

Public Spending Management and Macroeconomic Interdependence

This paper studies the domestic and international effects of “public competition policies” aimed at improving the efficiency of public spending. Such measures are modeled as an increase in the price elasticity of public consumption. The paper finds that public competition policies significantly affect macroeconomic interdependence across countries, both through the impact of the international elasticity of substitution and of mark-up effects. The paper also develops an extension in which fiscal shocks are stochastic. In welfare terms, countries with a larger government sector have an incentive to promote global public competition policies regardless of whether fiscal policy is modeled as deterministic or stochastic.

Competition principles and policy in the APEC: How to proceed and link with WTO

There is a growing consensus that competition‐oriented policy framework would be instrumental in achieving the Bogor goal of trade and investment liberalization by 2010/2020. As of now, only eight economies have the experience of operating competition policy for more than a decade. Many emerging economies of the APEC have only begun to introduce competition policy. The Auckland APEC Leaders Meeting of 1999 adopted the APEC competition principles. It is a significant step forward, but more hard work lies ahead: the issue of developing specific and concrete work program to implement the competition principles within the APEC and how to put competition policy in the much broader context of a multilateral trading system. The paper maps out a specific strategy to move the competition policy agenda forward at the APEC and how to link to the WTO and identifies the sources of such value‐added and makes a proposal in order to best utilize them.