India pulls 500, 1,000 rupee notes to fight graft

Yahoo – AFP, Annie Banerji, November 8, 2016

An Indian resident holds 500 and 1000 rupee banknotes in New Delhi, on
November 8, 2016 (AFP Photo/Prakash Singh)

Indian Prime Minister Narendra Modi ordered the withdrawal of 500 and 1,000 rupee notes from circulation on Tuesday in a shock announcement designed to tackle widespread corruption and tax evasion.

Modi said that while people could exchange their old notes for new bills at banks or post offices until the end of the year, or deposit them in their accounts, they would no longer be legal tender from midnight.

"To break the grip of corruption and black money, we have decided that the 500 and 1,000 rupee currency notes presently in use will no longer be legal tender from midnight that is 8 November, 2016," he said in a televised address to the nation.

"This means that these notes will not be acceptable for transaction from midnight onwards."

After a one-day shutdown of all banks and ATMs, new 500 and 2,000 rupee denomination notes would be issued from Thursday by the Reserve Bank of India (RBI), the country's central bank.

The 500 and 1,000 notes, which are worth around $7.50 and $15 respectively, are the largest bills in use in India which is still a massively cash intensive economy.

Since coming to power in 2014, Modi has pledged to crack down on so-called black money -- vast piles of wealth kept hidden from the tax authorities -- with a series of new measures, including 10-year jail terms for evaders.

The latest announcement comes a little over a month after the government raised nearly $10 billion through a tax amnesty for Indians to report undeclared income and assets.

Finance Secretary Shaktikant Das said the decision was "a very bold and powerful and a very decisive step to fight the menace of black money and the use of fake Indian currency notes".

Spy cameras

He warned those with hidden stashes of cash that banks would be extra vigilant with CCTV cameras to record identities and all banking transactions.

While the use of debit and credit cards has increased in the last decade in India, many small family-owned businesses insist on taking cash to evade tax or else ask for mark-ups to cushion the blow.

Most business leaders welcomed Tuesday's announcement although there were some concerns about the impact on small traders.

"It is perhaps the most significant move ever taken to curtail the parallel economy," said Chanda Kochchar, chief executive of ICICI Bank.

"This move will give a sharp boost to all formal channels of payment which in turn will help the formal economy to grow."

Some $439 billion left the country illicitly from 2003-2012, according to estimates from the Global Financial Integrity group in Washington.

Many of India's wealthiest citizens channel money to tax havens and convert it into jewellery and antiques to avoid tax.

Domestically, targets for investigation include temples and ashrams, where lavish donations can be a front for money laundering, and cricket betting. The property sector too is awash with black money.

Only 2.89 percent of Indians pay any income tax at all, India's previous finance minister told parliament in 2013.

The prime minister said that the move was also designed to counter Pakistan-based extremist groups who carry out attacks on India, saying "enemies from across the border" were financing their activities by mass producing counterfeit Indian notes.

Finance secretary Das said there had been a disproportionate rise in the number of 500 and 1,000 rupee notes in circulation in the last five years.

He revealed that the new 500 rupee note would bear the image of Delhi's iconic Red Fort while the new pink 2,000 rupee note would feature India's "Mangalyaan" Mars orbiter.

RBI chief Urjit Patel told reporters the central bank was ready to get the new notes into circulation swiftly.

"The RBI has been concerned with the growing menace of fake Indian currency notes which has been increasing in numbers," he added.

While the old bills will no longer be legal tender in shops, hospitals and transport operators will continue to accept them for the next 72 hours.

They would also be accepted at gas stations run by public sector oil companies, and at milk booths and crematoriums.

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BRICS create development bank, based in Shanghai

Yahoo – AFP, 15 July 2014

The BRICS group of emerging powers launched a $50 billion development bank Tuesday to be based in Shanghai and a $100 billion crisis contingency fund, according to a joint declaration.

The New Development Bank's first president will be from India while the board's chairman will be Brazilian, according to the declaration released at a summit in Fortaleza, Brazil.

The bank will have an initial subscribed capital of $50 billion followed by an authorized capital of $100 billion, equally shared among Brazil, Russia, China, India and South Africa.

The Contingency Reserve Arrangement will have an initial size of $100 billion and will help countries avoid "short-term liquidity pressures, promote further BRICS cooperation, strengthen the global financial safety net and complement existing international arrangements."

The bank and fund are seen as counterweights to the Western-dominated World Bank and International Monetary Fund, which BRICS nations say need more reform to give emerging nations more voting rights.

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Emerging markets to lead global development: IMF official

Want China Times, Xinhua 2013-09-14

Zhu Min at the Summer Davos forum in Dalian, Sept. 12. (Photo/Xinhua)

Emerging markets will lead global development and contribute to more than 80% of growth in the coming years, IMF deputy managing director Zhu Min said Thursday.

During a session at the ongoing 2013 Summer Davos Forum in northeast China's Dalian, Zhu told reporters that the US Federal Reserve's impending stimulus withdrawal will undoubtedly trigger widespread global volatility, but the emerging market is not likely to see a crisis.

His comments came after worries about the US reduction of the US$85-billion dollar bond-buying program sent jitters to some emerging markets such as India and Indonesia, prompting concerns of another financial crisis.

Zhu said compared with five years ago, these markets are now better positioned to cope with the possible shock, citing an improving macro environment, lower debt levels, increasing currency reserves as factors to cushion the blow.

He also urged the Federal Reserve to enhance policy transparency and carefully choose the timing of the scale-back to allow emerging markets to be better prepared.

Li Daokui, director of the Center for China in the World Economy at Tsinghua University in Beijing, echoed Zhu's view, saying the impact of the tapering move, which depends on the fundamentals of the economies, will be more diversified.

He believed China can weather through the phase as it has a bigger buffer of currency reserves.

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Should Indonesia be the I in Brics?

BBC News, Karishma Vaswani, Jakarta, 27 March 2013

Both India and Indonesia are growing fast, but lately the smaller of the two
has seen its economy expand the fastest

Related Stories

• Brics nations meet to cement relations
• India lowers growth forecast to 5%

Entry into the Brics club is a seen as a sign of success - a statement that you have made it as an emerging economy.

When the phrase was first coined back in 2001 by Jim O'Neill from Goldman Sachs he intended it to encompass just four fast growing emerging-market countries - Brazil, Russia, India and China.

South Africa was added in 2011 - despite protestations from Mr O'Neill.

Being a part of Brics means you are instantly branded a sure bet - or at least that is the perception among investors.

Economists say the Brics make up approximately 20% of global gross domestic product (GDP), and by 2030 could possibly rival the combined economies of the G7 countries (the US, Canada, the UK, France, Germany, Italy and Japan).

But already there are concerns that the fast growing economies of the grouping are seeing some trouble ahead.

'Policy paralysis'

Take India, which once saw its economy growing at a rate of 9%, but is now suffering from "policy paralysis", caused by a combination of stalling economic reforms and political haggling, according to Ajit Ranade, chief economist with the Aditya Birla Group.

Corruption and political inefficiency are
often  cited as reasons why India's
growth rate is slower than it was

"The government has had a lot of political dramas, with corruption scandals unfolding over the last few years, and opposition parties stalling economic reform at every juncture," he says.

"But fundamentally, India's economy is still stable, its medium-term growth drivers are intact. Some policy momentum is visible these days."

The Indian government says it expects the country to grow between 6.1% and 6.7% this year, faster than in 2012, when GDP grew by 5.3%.

Middle class

The slowdown in economic growth in India lies behind the suggestion that perhaps Indonesia should be the "I" in Brics instead.

On the face of it, India and Indonesia's economies have a lot in common - certainly more than just their first initials.

Both have large and young populations in fast growing economies driven mainly by domestic consumption.

But India's economy is six or seven times the size of Indonesia's, and it has many more mouths to feed, with a population of more than 1.2 billion compared with Indonesia's 240 million.

While India has seen its economy stumble recently after many years of strong growth, Indonesia's strengths have made it the darling of international investors - although it too has also seen economic growth decline moderately.

The two nations also face many of the same problems, with their messy political systems, shoddy infrastructure in desperate need of upgrading, corruption and crippling poverty.

Open economy

One of the comments you always hear about Indonesia's potential is the rapid emergence of its affluent middle class, which is set to almost double by 2020 to 141 million people, the Boston Consulting Group forecasts, which means more than half the population would be classified as middle-income class or richer. Domestic consumption helps power the economy and attracts plenty of foreign companies into this relatively open economy.

India has a large domestic market too, but restrictions on foreign ownership make it difficult for foreign firms to get involved.

Leaders of the Brics group of emerging
market  economies are meeting in
Durban

So last year, the global cosmetics giant L'Oreal chose Indonesia when it invested some $130m (£86m) in a state-of-the-art factory just outside Jakarta to produce 700,000 products per day, ranging from whitening creams to shampoos for both the domestic market as well as for exports to neighbouring countries.

The company has also opened a research and development facility in India and now sees both markets as equally important, according to Vismay Sharma, L'Oreal's president in Indonesia, who has also worked in India.

Bricsi?

Indonesia's growing importance relative to India has done little to remove some of the real challenges for retailers and distributors doing business here, however, such as the fact that it is made up of islands.

"You can't use road or rail everywhere, so you end up using ships," says Mr Sharma.

"You end up depending on ports, and that starts to put a lot of strain on the infrastructure."

Neither India nor Indonesia have good infrastructure, and both governments have pledged to spend billions of dollars to improve it.

But such lofty ambitions do not always deliver results. Last year, a much-lauded land acquisition bill was passed in Indonesia, but it has failed in its ambition to make it easier for the government to push ahead with infrastructure projects.

Obstacles such as these have resulted in analysts dismissing the idea that India should be replaced by Indonesia in the Brics grouping.

"You can add it as a sixth Brics, perhaps, making it Bricsi," says PK Basu, regional head of Maybank in Singapore.

"But replacing India doesn't make sense from any perspective. It's the first year in the last 15 years that Indonesia's real GDP grew faster than India. There's a dynamism in the Indian economy - in manufacturing, agriculture, services - that just isn't there in Indonesia."

HS Dillon, Indonesia's special adviser on poverty alleviation, agrees.

Each nation has moved into fast-growing economy status, each taking its own path to get there, but neither country has "made it", he says, insisting that "the rate of growth means nothing without the quality of growth".

Widespread poverty is there for all to see just a few kilometres outside of Jakarta's fancy financial district, where urban slums have cropped up in many parts of the city, as migrants from other parts of the archipelago have come here to find work. India's big cities too have seen mass migration into fast-growing cities that are becoming increasingly densely packed.

The poor in both countries are prone to avoidable diseases, resulting from poor sanitation, regular flooding and a lack of affordable healthcare.

"People say all the time we are one of the largest economies in the world, we are in the G20, we are this, we are that," says Mr Dillon.

"But what," he asks, "does that mean for the poor?"

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Former Goldman Sachs board member jailed for two years

BBC News, 24 October 2012

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• Ex-Goldman figure guilty of fraud

Rajat Gupta described the guilty
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A former Goldman Sachs board member who was found guilty of four criminal counts of insider trading has sentenced to two years in jail.

Rajat Gupta, 63, had leaked boardroom secrets to Raj Rajaratnam, a former hedge fund manager now serving 11 years in prison.

US District Court Judge Jed Rakoff also ordered Gupta to pay a $5m (£3m) fine.

Gupta said he regretted the impact of the case on his family and friends.

Reading from a statement, he said: "The last 18 months have been the most challenging period of my life since I lost my parents as a teenager."

He added: I've lost my reputation I built for a lifetime. The verdict was devastating."

During the court case, which resulted in Gupta being found guilty in June, the jury heard secret recordings of conversations between him and Rajaratnam.

The trial focused on a phone call made to Rajaratnam on 23 September 2008, minutes after Gupta had listened to a private conference call discussing a $5bn (£3.2bn) investment in Goldman Sachs by Warren Buffett's company Berkshire Hathaway. The deal was due to be made public after stock markets closed that day.

According to phone records, Rajaratnam bought $40m in Goldman Sachs stock moments after the phone call, earning nearly $1m.

Gupta, who was born in India and educated at Harvard, also served on the boards of Procter & Gamble, the Rockefeller Foundation and the Bill and Melinda Gates Foundation.

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The Large Families that rule the world

Indonesia second-most fraud-prone country

The Jakarta Post/Asia News Network, Thursday, Oct 18, 2012

Indonesia, often cited as the fastest-growing market in Asia, remains chronically plagued by fraud according to a global survey that found that 65 percent of companies in the country have been affected by fraudulent practices in the past year.

The percentage is above the global average of 61 percent, throwing Indonesia, alongside China, the region's economic behemoth, into second place among countries where businesses are most impacted by fraud.

First place went to India, where 68 percent of companies surveyed admitted that they had been affected by fraud.

The study, conducted with more than 800 senior executives worldwide, was commissioned by Kroll Advisory Solutions with the Economist Intelligence Unit, and the findings published in Kroll's Annual Global Fraud Report.

"Our ground-level experience reveals that the major developing economies in the Asia-Pacific region are as corrupt and as fraud-prone as ever," said Tadashi Kageyama, Kroll Advisory Solutions's senior managing director for Asia.

The survey listed information theft as one of the most common forms of fraud in Indonesia, with 35 percent of respondents - the highest figure globally - claiming losses in this area.

"Fraud perpetrated against Indonesian companies also tends to originate from vendors; 27 percent of companies reported that a vendor played a leading role in fraud, compared to 17 percent worldwide," the Kroll report noted.

Information theft has also become the bane of companies worldwide, its prevalence declining slightly to 21 percent this year from 23 percent in the last survey. The US and Europe follow at Indonesia's heels in terms of information theft, with rates reaching 26 percent for both countries.

"Surprisingly, it is employees, rather than hackers, who are more to blame for the loss of information," the report mentioned.

Information technology (IT) analysts have previously pointed out that the growing trend of bring-your-own-device (BYOD), where employees utilize their personal devices such as smartphones and laptops for work, had unleashed issues concerning the security of company information.

Tom Hartley, Kroll Advisory Solutions president and CEO, said that companies, however, had taken action "in response to the myriad of external threats, leading to the overall decrease in the prevalence of fraud".

The study shows that globally, fraud concerns have eased. The number of respondents answering that they were moderately or highly vulnerable to information theft decreased to 30 percent from 50 percent, even though only 2 percent of companies reported having suffered from this type of fraud.

The findings, the report concludes, suggest that companies have grown overconfident regarding their vulnerability to fraud, which actually increases their risks.

India's anti-graft activist agrees to end hunger strike

Reuters, NEW DELHI | Sat Aug 27, 2011

Veteran Indian social activist Anna Hazare holds a baton on the 12th day
 of his fast at Ramlila grounds in New Delhi August 27, 2011.
(Credit: Reuters/Parivartan Sharma)

(Reuters) - A self-styled Gandhian activist, whose campaign against corruption united millions of Indians, agreed Saturday to end his 12-day hunger strike after the government agreed to his demands for tougher laws against rampant graft.

Anna Hazare, 74, told tens of thousands of supporters in New Delhi Saturday evening, flanked by members of the ruling Congress party, that he would end his hunger strike Sunday morning.

Hazare's agitation has tapped a groundswell of public anger against endemic corruption, uniting the country's bulging middle-class against the hapless government and underlining voter anger at Prime Minister Manmohan Singh.

(Reporting by Annie Banerji; Editing by Paul de Bendern)

India wants to build broad-based ties with RI: FM

Veeramalla Anjaiah, The Jakarta Post, New Delhi | Mon, 02/08/2010 11:01 AM

India and Indonesia are the biggest democracies in Asia and have enjoyed historical economic and cultural links for more than a thousand years. Both countries now have new foreign ministers. India’s new Minister of External Affairs S.M. Krishna, a Fulbright scholar and a veteran politician, gave a written interview to The Jakarta Post’s Veeramalla Anjaiah recently in New Delhi where he talked about the growing strategic ties between India and Indonesia. The following are excerpts of the interview.

Question: What, according to you, could be the most inspiring factor that has kept both countries’ relationship not only stable but has made it stronger today?

Answer: India has enjoyed civil and trade relations with countries of Southeast Asia, in general, and Indonesia, in particular, for nearly 2 millennia. These relations have been further consolidated under India’s ‘Look East Policy’, which signifies our strong resolve to engage with our partners in the ASEAN region.

Both India and Indonesia have been maritime neighbors and strategic partners since 2005. It was in November 2005, during the visit of President Susilo Bambang Yudhoyono, that our countries decided to embark on a New Strategic Partnership. In June 2007, when my predecessor Pranab Mukherjee visited Indonesia, two sides agreed on an action plan to implement the new strategic partnership. This action plan calls for a regular exchange of ministerial visits for exchange of views and expansion of cooperation and activation of existing institutional arrangements between the two countries.

In a nutshell, our relations with Indonesia are rooted in history; characterized by strong civil linkages; and the determination by leadership on both sides to consolidate our relations in the years to come.

How does democratic Indonesia, the world’s biggest Muslim populous nation, figure in India’s foreign policy?

Being the two largest democracies in Asia, our two countries can play a constructive role in bringing peace, stability and development in our region. As maritime neighbors (the eastern most island in the Andaman and Nicobar chain is separated by only 90 nautical miles from the tip of northern Sumatra), both India and Indonesia together control the entry point from the Indian Ocean to the Bay of Bengal in the north and the Malacca Straits to the east. We jointly conduct coordinated patrols along the international maritime boundary line at the mouth of the Malacca Straits. We also have a memorandum of understanding (MoU) in place for cooperation in the area of counterterrorism.

Indonesia has many natural resources and vast economic potential, making it an attractive long-term partner for India. A number of Indian companies have invested in Indonesia since the 1970s.

Indonesia is a key country in the context of our dialogue partnership with ASEAN and our participation in the East Asia Summit. Thus, our relations with Indonesia assume significance in the bilateral as well as regional contexts.

Bilateral trade value reached US$10 billion in 2008, yet it is still not commensurate with both countries’ real economic potential. What measures are to be taken to boost economic ties to rectify this?

The recent period has seen rapidly increasing trade and investment relations with Indonesia, which is currently our third largest trading partner in ASEAN. Our bilateral trade turnover crossed $10 billion in 2008, surpassing the target set for 2010 two years ahead of schedule. This is a very positive development.

At the same time, there is a need to give further impetus to our bilateral economic relations, keeping in view the vast untapped potential. We are taking several measures such as organization of industrial exhibitions, trade and investment promotion activities, discussions on business opportunities and buyer-selling to further promote economic and trade relations between the two countries.

Last year India signed the much-awaited FTA with ASEAN countries. Do you see any difficulties in implementing this FTA with Indonesia?

The ASEAN-India FTA came into force with effect from Jan. 1, 2010. As I understand, India and three ASEAN partners, namely Singapore, Malaysia and Thailand, have notified the ASEAN Secretariat of completion of their ratification formalities. Indonesia is still in the process of ratifying the FTA. This is a procedural matter and will be completed as per established domestic requirements in Indonesia. We do not see any difficulties in implementing the FTA with ASEAN and are confident that it will enhance bilateral trade and investment relations in years to come.

Surprisingly, we have new foreign ministers in both countries at the same time. Indonesia has been seeking closer ties with both China and India at bilateral, regional and global levels. How do you see China’s growing influence in ASEAN?

I am very pleased that Indonesia has a very young and dynamic foreign minister, Dr. Marty Natalegawa. I felicitated him when he took over in October 2009 and have invited him to visit India this year for the 4th meeting of the Joint Ministerial Commission. I look forward to his visit that will give us an early opportunity to review the whole gamut of our bilateral relations and the ways to move forward.

Like India, China also has enjoyed a long history of cultural and trade relations with the countries of Southeast Asia. Like India, China is an active dialogue partner of ASEAN. We have common interests in our engagement with the region and believe that as members of the East Asia Summit, we could collectively contribute to the regional development and economic integration in East Asia.

Last but not least, how do you visualize that the Indonesia-India bilateral relations will shape up in the next five years?

Both sides are committed to a speedy implementation of the action plan for the Implementation of the New Strategic Partnership. The action plan provides a good roadmap for further consolidation of our partnership across all areas of cooperation over the next 5-10 years. During the coming years, we will work toward developing a broad-based relationship expanding cooperation in the political, security, economical, science and technology, educational, cultural and people-to-people contacts.

Indonesia in Place Among BRIC Nations, Templeton Says

BusinessWeek, by Berni Moestafa, January 28, 2010, 04:10 AM EST

Jan. 28 (Bloomberg) -- Indonesia, Asia’s second-best performing stock market last year, may be ready to join the so- called BRIC group of major emerging nations, according to Templeton Asset Management Ltd.

“Indonesia’s political and economic outlook has improved tremendously in recent years,” Templeton portfolio manager Dennis Lim wrote in a note yesterday on Chairman Mark Mobius’s blog. “So clearly, it would not look out of place beside the BRIC countries.”

Inclusion in the category -- Brazil, Russia, India and China -- coined in 2001 by Goldman Sachs Group Inc. Chief Economist Jim O’Neill may increase demand for Indonesian stocks. Investors should “stick with the BRICs,” a group that “tends to outperform in non-recession years,” Morgan Stanley strategists led by Jonathan Garner said last week.

The Jakarta Composite index jumped 87 percent last year as Indonesia skirted the global recession after nine interest rate cuts by the central bank. President Susilo Bambang Yudhoyono’s re-election in July boosted confidence he will maintain policies that helped Southeast Asia’s biggest economy expand more than 6 percent annually in the two years until 2008.

Economic growth may average 6.6 percent over the next five years as poverty and unemployment decline, Yudhoyono said on Jan. 4. Fitch Ratings on Jan. 25 raised Indonesia’s credit ratings to one level below investment grade.

Fitch’s Upgrade

Fitch’s rating upgrade reflects Indonesia’s economic resilience and an improving balance of payments, said Bank Indonesia Deputy Governor Hartadi Sarwono. Foreign-exchange reserves rose to $69 billion as of Jan. 22, he said.

“Being in the same group as BRIC may get Indonesia more attention from investors,” said Finny Fauzana, a fund manager at PT PNM Investment Management, which oversees about $139 million in assets in Jakarta. “But foreign investors putting money into the real economy need more than that because they consider a lot of other factors such as regulation and taxes.”

Indonesia ranks 122 out of 183 economies in a World Bank 2009 survey on business-friendly practices. President Yudhoyono said on Oct. 20 he would reduce bureaucratic “bottlenecks” that hinder investment. He campaigned for re-election in July on a pledge to double spending on roads, rails and ports to $140 billion over the next five years to boost economic expansion.

Faster Growth

Growth may accelerate to 7 percent from 2011, providing the case for Indonesia’s inclusion into BRIC, according to a Morgan Stanley report in June. Emil Salim, a former cabinet minister, said in July that Indonesia’s targeting to “put another ‘I’ into BRIC,” adding the goal may be achieved in five years.

“The BRICs theme, which played well in 2009, continues to resonate in early 2010,” Cambridge, Massachusetts-based funds tracker EPFR Global said Jan. 21. Dedicated BRIC equity funds recorded inflows of $182 million in the third week of January, compared with the $103 million average last year, EPFR said.

Overseas investors have bought a net 666 billion rupiah ($71 million) of the shares this year, according to exchange data. Overseas investors purchased 13.3 trillion rupiah of the shares last year, down from 18.7 trillion rupiah in 2008.

--Editor: Reinie Booysen, Linus Chua

To contact the reporter on this story: Berni Moestafa in Jakarta at +62-21-2355-3029 or bmoestafa@bloomberg.net

To contact the editor responsible for this story: Linus Chua in Singapore at +65-6212-1530 or lchua@bloomberg.net

Subsidy cut must for healthy budget: SBY

Erwida Maulia, The Jakarta Post, Jakarta | Tue, 12/08/2009 9:26 AM

President Susilo Bambang Yudhoyono said Monday the government would apply a new subsidy policy for the next five years in a bid to ensure that the country has “healthier” state budget.

The President said, while briefing hundreds of alumni the National Resilience Institute (Lemhanas), that one-fourth of the state expenditures had so far gone to finance subsidies and one-fifth to pay debts, leaving only a limited budget to finance development activities.

“I want our state budget to grow healthier and stronger to finance the country’s development,” he said at the Presidential Palace.

“Thus I want incorrect subsidies to be cut. And which subsidies are they? That is another challenge.”

Indonesia’s deficit is estimated to reach Rp 98 trillion (US$10 billion), or 1.6 percent of the country’s GDP in 2010.

Under the 2010 budget bill, the government has allocated Rp 107 trillion in energy subsidies, which may increase if global oil prices rise Rp 69 trillion has been allocated for subsidized fuels and Rp 38 trillion for electricity.

With subsidy cuts commonly leading to soaring prices, Yudhoyono said it should be conducted in a “systematic way”.

“From an economic point of view, the subsidy cut might be a solution, but from social, political, and security aspects, it could create huge problems. The current policy has yet to take into account people’s purchasing power and incomes per capita.”

The President said these thoughts had led to the government’s adoption of a new subsidy policy for the next five years.

The new policy, the President explained, would ensure that subsidies given must comply with certain principles, such as having a rational basis for the amount, being correctly targeted, and consisting of several phases to prevent any social and economic turbulence.

“[The subsidy cuts] should be in line with improvements in our people’s purchasing power and welfare, as well as our inflation management.”

Subsidized commodities in Indonesia include fuel, electricity, and fertilizers. The government has set out plans to cut subsidies for these commodities gradually to prevent public rejection.

Fuel subsidy cuts, conducted twice by Yudhoyono’s administration during his first five-year tenure, led to fuel price hikes, with a knock-on effect on transportation and other prices.

The last time the government raised subsidized fuel prices was in May 2008, with an average 28.7 percent increase, as global crude oil prices reached almost $140 per barrel at that time.

The cuts prompted a nationwide outcry, with large rallies taking place in a number of regions.

Yudhoyono said, however, that the public had begun to slowly but surely understand the “bitter, difficult” decisions the government had to take in 2005 and 2008.

“This nation has finally come to realize that the subsidy cuts brought us benefits; they’ve made our economy healthy and we can use the growth to finance our education and health programs for our people, and our infrastructure development.”

Yudhoyono added that inflation trends should be taken into account before applying another subsidy cut policy.

He also said that Indonesia had been in the right direction with its economic polices, with the country among the only three members of the G20 economic forum managing to record positive growth during the global financial crisis.

The other two countries are China and India.

The government has estimated economic growth of 5.5 percent next year from an estimated 4.3 percent this year.

Inflation in 2010 is predicted to reach 5 percent as the global economy recovers.

Asian economies differ in response to global crisis

Aditya Suharmoko, THE JAKARTA POST, JAKARTA | Tue, 03/24/2009 9:10 AM

The road to economic recovery varies across Asian countries, with Indonesia, China and India perhaps the least affected by the global economic crisis, a seminar heard Monday.

China and India, two of the fastest growing economies in the world, are expected to still post positive economic growth this year, despite slowing from the past few years. Indonesia will also score positive growth, although it may be about 30 percent slower than in 2008.

The International Monetary Fund has said global growth may contract by between 0.5 percent and 1.5 percent this year.

“There is great hope that emerging economies, such as China and India, will launch new Keynesian initiatives leveraging private-sector funds and become the new engines of global growth that will drive the world economy to growth and prosperity once again,” said Naoyuki Yoshino, a professor at Keio University in Tokyo.

He was presenting his paper at a seminar titled “East Asia’s response to the global economic crisis” in Jakarta on Monday.

Yoshino said developed countries would be restricted from issuing government bonds to finance fiscal stimulus measures due to enormous fiscal deficits.

Japan, for instance, has public debts amounting to 180 percent of its GDP.Keynesian policies usually call for financing fiscal stimulus by issuing government bonds during hard times.

But Yoshino said issuing “revenue bonds” could be a way to utilize private sector funds.

With revenue bonds, the government bears a portion of infrastructure costs, with the remaining costs funded by the private sector through the issuance of revenue bonds, he said.

“The private sector will get return based on the expected revenue from the project to be constructed,” Yoshino said.

“In some Asian countries, notably China and India, domestic demand will increase when their economies are revitalized through efficient infrastructure development.”

South Korea, as a trade-dependent country, needs developed countries to aim their economic stimulus package at infrastructure, which may help recover South Korea’s falling exports.

As an example, financial aid to Detroit automakers in the US will affect the competitiveness of South Korea’s automakers.

Meanwhile, Indonesia, whose economy is mainly dependent on domestic demand, has allocated Rp 12.2 trillion (US$1.05 billion) for the development of infrastructure and the rural sector.

University of Indonesia economist M. Chatib Basri said spending on labor-intensive infrastructure projects would have a significant impact on job opportunities and economic growth.

The seminar was also of the opinion that Indonesia was relatively better off than neighboring countries in coping with the global crisis, with Thailand and the Philippines severely hit by the crisis.

“Fiscal policy is the only option left,” Bhanupong Nidhiprabha, an associate professor at Thammasat University, wrote in his paper.

“Unless the government maintains law and order to restore business sentiment and consumer confidence, both monetary and fiscal stimuli will fail miserably.”

Thailand’s political condition is far more unstable compared to Indonesia.

The country has seen chaotic power struggles in the past two years.

The Philippines may be facing an even worse economic situation, as the monetary policy has not been unable to accelerate lending, and with its fiscal policy “constrained by a historically poor ability to raise the tax to GDP ratio”, said Maria Socorro H. Gochoco Bautista, a professor at the University of the Philippines, in her paper.

“The right kind of expenditures needs to be undertaken,” she said.

“These might include direct cash transfers to the poor in exchange for a promise to keep children in school.

“Allowing peso depreciation, assuming enough workers remain employed abroad, will also boost incomes of the poor and middle classes to sustain spending.”