The External Debt Situation in Indonesia: Performance and Prospects

In interviews with bankers, government economists and academic observers, most of them attributed the absence of an Indonesian debt crisis during 1982–84 to the fact that a significant portion of external public debt, an average of 37 percent, was long-term concessionary loans from foreign governments and international agencies. Our analysis challenges this conventional explanation. We show that if Indonesia (1) had paid the same effective interest rate as Mexico, (2) had the same maturity structure as Mexican debt, and (3) had the same export-GNP ratio as Mexico, then its average 1980–82 total debt service-export ratio would have been 84.4% instead of the actual 30.1%. Our decomposition shows that concessional interest rates account for 5.8 percentage points of the gap, maturity structure for 17.7 percentage points and export orientation for 30.8 percentage points.
We have concluded that the major cause for the favorable 1982–84 outcome is competent management of the exchange rate. The absence of protracted exchange rate overvaluation from 1979 onward was fundamental in maintaining a strong nonoil tradeable sector. The nonoil tradeable sector was able to earn enough foreign exchange to service Indonesian debts when the external shock of high interest rates increased debt service payments and the recession in industrialized countries lowered the price of oil. The absence of extended exchange rate overvaluation also kept the external debt down and the maturity structure on the long side by not encouraging capital flight. We ascribe this use of the exchange rate to protect the tradeable sector as much to the existence of an influential political constituency consisting of neoclassical economists, Javanese peasants and Outer Island residents as to balance-of-payments considerations.
We recommend an aggressive exchange rate policy and two sets of supplementary measures to reduce the probability of a debt crisis in the medium run.     

Experimental investigation into the role of trust in collusion

Trust has traditionally been regarded as conducive to ethical decision making. However, empirical studies on the relationship between trust and ethical decision making are rare, especially those concerning the negative effects of trust. Therefore, our study aimed to provide empirical evidence in this area. An experiment was designed to investigate whether trusted parties are more likely than non‐trusted parties to enter into a collusion that will have unfair consequences for a third party. The results showed that trusted parties are significantly more likely to collude than are non‐trusted parties. Furthermore, an ancillary analysis revealed the mechanism of trust. First, participants with a stronger need to collude were the most likely to collude in the trust group. Second, experimental and hypothetical settings generated different results, and we suspect that real harm plays a vital role. Overall, we conclude that the absence of trust serves as an impediment to collusion.     

Factor pricing in commodity futures and the role of liquidity

This paper empirically investigates the pricing factors and their associated risk premiums of commodity futures. Existing pricing factors in equity and bond markets, including market premium and term structure, are tested in commodity futures markets. Hedging pressure in commodity futures markets and momentum effects is also considered. This study combines these factors to discuss their importance in explaining commodity future returns, while the literature has studied these factors separately. One of the important pricing factors in equity and bond markets is liquidity, but its role as a pricing factor in commodity futures markets has not yet been studied. To our knowledge, this research is the first to study liquidity as a pricing factor in commodity futures. The risk premiums of two momentum factors and speculators’ hedging pressure range from 2% to 3% per month and are greater than the risk premiums of roll yield (0.8%) and liquidity (0.5%). The result of a significant liquidity premium suggests that liquidity is priced in commodity futures.     

The joint effect of leader–member exchange and emotional intelligence on burnout and work performance in call centers in China

We examined the joint effect of LMX and emotional intelligence (EI) on burnout and work performance. Results based on data collected from 493 leader-member dyads in the call center of a large Chinese telecommunication company indicated that LMX was negatively related to burnout, yet was not significantly related to objective work performance. Moreover, we examined the effects of the four dimensions of EI (self-emotion appraisal, other-emotion appraisal, use of emotion, and regulation of emotion) on burnout and performance, and found that burnout mediated the link between use of emotion and work performance. Results also showed that LMX was associated with burnout and work performance more strongly for service workers with lower levels of self-emotion appraisal. More surprisingly, the link between LMX and work performance was stronger for service workers with higher levels of use of emotion.     

Media as watchdogs: The role of news media in electoral competition

We develop an equilibrium model to analyze the role of the media in electoral competition. When policy payoffs are state-dependent, party policies do not converge to the median voter's ideal policy if the media report only party policies. News analysis about the state, though possibly biased, can discipline off-equilibrium deviations and make the parties adopt more centrist policies. Since voters are rational, the party favored by the media need not win with a higher probability. Instead, media bias may reduce the effectiveness of electoral competition and lead to more polarized policies.     

The Effects of Environmental Factors on the Behavior of Chinese Managers in the Information Age in China

This paper examines the effects of environmental factors on the ethical behavior of managers using computers at work in Mainland China. In this study, environmental factors refer to senior management, peer groups, company policies, professional practices, and legal considerations. Ethical behaviors include attitudes to disclosure, protection of privacy, conflict of interest, personal conduct, social responsibility, and integrity. A questionnaire survey was used for data collection, and 125 mainland Chinese managers participated in the study. The results show that peer groups, professional practices, and legal considerations do influence the ethical behavior of mainland Chinese managers in the areas of social responsibility, integrity, and accountability. A discussion of the implications of the results is also provided in this paper.     

Some Preliminary Findings on Hong Kong Business Cycles

This paper presents some preliminary quantitative findings on the characteristics of business cycles in Hong Kong. The recently developed "approximate bandpass filter" is used to extract the fluctuations at business cycle frequencies (8 to 32 quarters) of macroeconomic time series. Based on the filtered time series, the paper identifies the cyclical turning points, describes the pattern of output fluctuations, and examines the co‐movement of various macroeconomic variables.     

The Resources Allocation Effects of Indonesia's Financial Repression in the 1974–1983 Period

We found that the selective credit policy of the 1974-83 period benefitted the Indonesian economy in a way unanticipated by the protagonists in the financial repression debate. The selective credit policy by favoring the manufacturing and trade sectors reduced their decimation by the overvalued exchange rate created by expansionary macroeconomic policies. The existence of a sizeable tradeable sector when the negative balance of payments shocks hit after 1981 enabled Indonesia to earn enough foreign exchange to service its external debts and thus avoid the type of prolonged economic crisis experienced by Latin America. (It must be stressed that the selective credit policy constituted only one of the policy actions that preserved the economic viability of the tradeable sector.) Since the selective credit policy was not undertaken with the expectation of negative balance of payments shocks in 1980s, its beneficial effects on economic development were entirely fortuitous.     

A correlated bivariate Poisson jump model for foreign exchange

This paper develops a new bivariate jump model to study jump dynamics in foreign exchange returns. The model extends a multivariate GARCH parameterization to include a bivariate correlated jump process. The conditional covariance matrix has the Baba, Engle, Kraft, and Kroner (1989) structure, while the bivariate jumps are governed by a Correlated Bivariate Poisson (CBP) function. Using daily data we find evidence of both independent currency specific jumps, as well as jumps common to both exchange rates of the Canadian dollar and Japanese Yen against the U.S. dollar. The paper concludes by investigating a time-varying structure for the arrival of jumps that relaxes the assumption of constant and bounded jump correlation imposed by the CBP function.I am indebted to two anonymous referees and the editor, Baldev Raj for helpful suggestions. I am also grateful for helpful comments from Adolf Buse, Ramazan Gencay, Rehim Kilic, John Maheu, Alex Maynard, Denis Pelletier, Denise Young, and seminar participants at the Tenth Annual Symposium of the Society for Nonlinear Dynamics and Econometrics (SNDE), Federal Reserve Bank of Atlanta 2002; the Midwest Econometrics Group (MEG) Meetings, Federal Reserve Bank of Kansas City 2001; Canadian Economics Association (CEA) Meetings, McGill University 2001.     

The Best of Both Worlds: Accessing Emerging Economies via Developed Markets

A growing body of evidence suggests that the benefits of international diversification via developed markets have declined dramatically. While emerging markets still offer diversification opportunities, their public equity indices capture only a fraction of emerging countries' economic activity. We propose a diversification approach that exploits the global connectedness of developed countries to gain exposure to emerging countries' overall economies rather than their shallow equity markets. In doing so, we demonstrate that developed markets still offer substantial diversification benefits beyond those available through equity indices. Our results suggest that relying on equity indices to assess diversification benefits understates diversification gains.