Allocating and taxing rights to state-owned minerals

Is Indonesia using the most effective possible strategies to derive revenue from its mineral resources? Auctions and work program bidding are the main ways of allocating mineral leases. In addition to the company taxes applied to all companies, governments can raise revenue from minerals owned by the state through auctions, royalties and rent taxes paid by private firms, and through dividends from state-owned firms. Indonesia uses work program bidding to allocate leases, and its production-sharing contracts are roughly equivalent to a rent tax at a high rate. This paper considers these options for raising revenues from mineral resources. It argues that efficiency and government revenue would both be increased if Indonesia relaxed direct controls on the operations of mining companies, and allocated leases by means of auctions, combined with a much lower rate of rent tax or, better still, a royalty.     

Trade Reform in Indonesia, 1987–95

This paper quantifies Indonesian trade liberalisation between 1987 and 1995 as measured by changes in real effective rates of protection (RERP), i e effective rates of protection corrected for trade policy-induced changes in wages. The RERP for manufacturing, including oil refining, fell from 27% in 1987 to 11% in 1995, for manufacturing, excluding oil refining, the fall was from 59% to 16%, and for agriculture from 9% to 4% The standard deviation of RERPs for all tradeable sectors fell from 42 percentage points to 26; and for manufacturing, excluding oil refining, from 102 percentage points to 39.     

Indonesian Monetary Policy During the 1997–98 Crisis: A Monetarist Perspective

This paper defends the IMF's strategy of targeting base money (M0) in 1997–98 against the criticism by Grenville (2000) that it was destined to fail because M0 is mainly demand determined and the demand for it was increased by a large and unpredictable amount by the banking panic. Grenville contends that Indonesian monetary policy should have aimed at domestic price stability. It is argued here that the growth of M0 far exceeded what could be justified by last resort lending to accommodate the banking panic, and that rapid inflation could only have been avoided by preventing most of the expansion of the public's cash holding that actually occurred. Achieving a modest target for domestic inflation would not therefore have been very different in practice from setting tight limits on the growth of M0. In contrast, both these policies would have been very different from the loss of control over M0 that actually occurred.     

Anti-Poverty Programs in Indonesia

Between 1994/95 and 1997/98, Indonesia's spending on anti-poverty programs grew from 0.1% to 0.3% of GDP. The introduction of the 'social safety net' raised anti-poverty spending to 1.4% of GDP in 1998/99 and changed its main focus from job creation schemes, financed mainly by loans and grants to small firms and community groups, to in-kind subsidies for rice, public health care, scholarships for children in poor families and grants to schools in poorareas. The most accurately targeted program was health care, which covered twice as many people in the two poorest deciles as in the remaining eight. For most other programs, this targeting ratio was only about 1.5. We argue that the education and health care programs were the most successful, and doubt that the rice subsidy, job creation and loans schemes were worthwhile.     

Preference revelation and monopsony

(1) Johnson demonstrated the formal equivalence between the free-rider problem and monopsony. (2) Vickrey's method for eliminating the inefficiencies resulting from monopsony (monopoly) works by converting simple monopsonists (monopolists) into perfectly discriminating monopsonists (monopolists). (3) We show that three recently proposed solutions to the free-rider problem have the same rationale, i.e. they use ‘Clarke taxes’ to convert Johnson's simple monopsonists into perfectly discriminating monopsonists. The three mechanisms are those of: (i) Clarke and Groves; (ii) Groves and Ledyard; and (iii) Arrow. The relationships between these mechanisms, and between each of them and monopsony, are analyzed diagrammatically.     

MEASUREMENT OF CAPITAL IN DENMARK

In December 1973, the so-called 2nd Perspective Plan was published by the Danish Ministry of Finance. It included some 5 and 15 year forecasts of investments in the private sector, based on the projected development of production and labour. The forecasts were made by use of a simple Cobb-Douglas production function, taking as capital-input the stock of buildings and machinery, using the perpetual inventory method (assuming sudden death).
Since the publication of these forecasts, an attempt has been made to refine the capital concept, measuring its services as factor input. Thus, it has been necessary to introduce an exogenous rate of interest. Inspired by Danish findings for private cars, depreciation functions for stocks and utility of machinery are developed. These functions may not seem very realistic for the heterogenous class of durables called machinery, but other possibilities appear even less convincing.
Together with an assumption of exponential decay for buildings, it is possible to produce alternative time-series for changes in input of capital in the production process. Some of the resulting estimates of parameters in the Cobb-Douglas function give a better fit than the original version. But no value of the elasticity of production of capital is firmly established, e.g. it is obviously dependant upon the period of estimation, and therefore of no great value in forecasting. No firm connection between labour productivity and capital input (in short as well as the long run) has so far been revealed in Denmark, so no measure of capital is yet of great use in forecasting, except when future growth in production resembles that of the past fairly closely.     

A derivation of the IS-LM model from explicit optimizing behavior

A general equilibrium analysis which closely resembles the ad hoc IS-LM model of traditional macroeconomics is derived from explicit optimizing behavior in an overlapping generations model in which individuals have finite lives and generations are not linked by the bequest motive. Therefore tax finance and bond finance are not equivalent, and the conventional analysis of open-market operations, and bond-financed changes in government spending and in current taxes require the changes in expected future taxes to be fully specified. These fully specified policy changes are analyzed under rational expectations.     

Post-crisis monetary and exchange rate policies in Indonesia,Malaysia and Thailands

This paper surveys the post-crisis monetary and exchange rate policies of Indonesia, Thailand and Malaysia. Malaysia has pegged the ringgit while Indonesia and Thailand have adopted heavily managed exchange rates. Under their IMF programs, Thailand and Indonesia set base money targets, but Thailand has moved, and Indonesia is now moving, to inflation targeting, using interest rates as the short-term instrument. Malaysia also sets interest rates. The ability of the three central banks to set interest rates and also pursue an exchange rate target with an interest rate target has been bolstered by restrictions on the internationalisation of the domestic currency. The three central banks have also had to sterilise the monetary effects of their foreign exchange interventions. It is argued that inflation targeting is now a good policy choice, but that a more freely floating exchange rate would be better than sterilisation of balance of payments surpluses or deficits.