Indonesian development analyzed<\/p>\n
Indonesia Assessment 1994. Finance as a Key Sector in Indonesia's
\nDevelopment. Edited by Ross H. McLeod. Published by Research School
\nof Pacific and Asian Studies, Australian National University and
\nInstitute of Southeast Asian Studies, 1995. Paperback, 353 pages.<\/p>\n
MELBOURNE, Australia (JP): Reading Ross McLeod's Indonesia
\nAssessment 1994, Finance as a Key Sector in Indonesia's
\nDevelopment, I could not help seeing the macropicture. While
\nprivate and public finance and banking experts plan, review and
\ndebate what should be happening with the Indonesian exchange rate
\nand money market, millions of Indonesians still stash what money
\nthey have under their mattresses.<\/p>\n
However, in the context of the finance sector of national
\ndevelopment, these millions have yet to be secured by the banking
\nculture. Oblivious they may be to the celestial activities of
\nbanks, the fact is their earthly lives are inexorably affected by
\nthe bank's activities.<\/p>\n
The book traces and analyses financial activities and changes
\nthat occurred between the banking deregulation package of 1983
\nand 1994, when the book was compiled.<\/p>\n
In an early chapter on recent economic development, economist
\nMari Pangestu points to the continuing success of Indonesia's
\nmacroeconomic management with cautions optimism. There are
\nhurdles yet to overcome, such as problems in managing the money
\nsupply and the fall in non-oil exports. While deregulation was a
\nnecessary precursor of the macro economic reforms that has
\nbrought growth and rapid development to the nation's economy,
\ncareful planning and skillful management were crucial.<\/p>\n
Ali Wardhana, economic advisor to the government, gives an
\noverview of financial reform. He underlines the difficult task of
\ndevising a regulatory framework that will improve economic
\nefficiency and welfare, given the fact that government regulators
\nare not always wise, fair or efficient.<\/p>\n
Wardhana, former coordinating minister for financial and
\nindustrial affairs, stresses the importance of finance as an
\ninput into all economic activities. Hence, failures in the
\nfinancial market will impair the performance of the entire
\neconomy. He then plays with the question of whether government
\nshould play a stronger regulatory role in the financial sector
\nthan in other sectors.<\/p>\n
To illustrate the difficulty of predicting financial
\nperformance, he mentions the problem of the "asymmetric
\ninformation" condition in financial transactions. It is where
\nlenders are likely to have less complete information about
\nborrowers and the intended use of borrowed funds than borrowers
\nthemselves.<\/p>\n
Incomplete information is also a problem when implementing
\nmonetary policy, according to Boediono. Policy makers have to
\nimprovise while trusting their intuition and being continuously
\npressed by time and the rapid flow of events. If policy makers
\ndon't have enough information, spare a thought for the public. No
\nwonder then that the Indonesian public, as stated by Boediono,
\ntend to be suspicious of the stability of the government's
\npolicies and the state of the economy.<\/p>\n
In the chapters on banking sector reforms, most writers
\nconcede the importance of prudent regulations to protect small
\nscale depositors, as well as partially control the flow of
\ncapital. However, in the chapters on domestic and international
\ncapital markets, Ross McLeod argues that the emphasis of foreign
\nborrowing should be placed on the soundness of the investments
\nfor which the borrowings are intended. He also draws attention to
\nan interesting fact.<\/p>\n
The sudden and substantial increase in Indonesia's foreign
\ndebt burden which occurred in the latter half of the 1980s was
\nnot caused by excessive government spending, either in absolute
\nterms or relative to the amount of its tax and other revenues. It
\nwas caused by substantial appreciation of various currencies,
\nespecially of the yen. And a large part of Indonesia's foreign
\nborrowings was and is denominated in yen.<\/p>\n
McLeod suggests spreading borrowing over a range of major
\ncurrencies to minimize the exchange rate risk. Another suggestion
\nis to trade in futures, where Indonesia could buy yen futures to
\nprotect itself from upward movements in the dollar price of yen.
\nIf the time horizon for futures contracts is much shorter than
\nthe maturity of Indonesia's yen borrowings, then it may be
\npossible to roll over or renew those futures contracts as they
\nexpire.<\/p>\n
On the whole, the book highlights the prevalence of finance in
\nevery sector of Indonesia's development, as well as the optimism
\nthat Indonesia is generally heading in the right direction. In
\nthe meantime, the bulk of the population can only hope that the
\nnation's policy makers have a great deal of wisdom and fine
\nintuition, and do not make too many mistakes.<\/p>\n
-- Dewi Anggraeni<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/indonesian-development-analyzed-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }