[wanita-muslimah] Indonesia's Poverty Trap
http://asiasentinel.com/index.php?option=com_contenttask=viewid=1447Itemid=226 Indonesia's Poverty Trap Written by Lisa Murray Tuesday, 23 September 2008 It's an economic cliché, but as the rich get richer, this country's poor keep getting poorer The tragic loss of 21 Indonesians who were trampled to death as they jostled outside a house in East Java to receive a cash handout of just 30,000 rupiah (US$3.20) has shocked the nation and exposed the plight of its poorest citizens. Politicians were quick to dismiss any link between the country's chronic poverty problem and last week's tragedy, citing a drop in the official poverty rate last year to 16.6 per cent from 17.8 per cent the previous year. But that is a fairly meaningless statistical improvement to the more than 19 million Indonesians who still live on less than US$1 a day. Moreover, almost half of the country's 225 million people live on less than US$2 a day. Rising food and fuel prices this year have hit hard for the bottom third of households, which spend 65 per cent of their income on food and drink. If Indonesia wants to significantly reduce its poverty rate, the Organisation for Economic Cooperation and Development says that its economy needs to grow at least 8 per cent a year. But that is looking virtually impossible for the next few years. Rising inflation, a sliding rupiah and the breakdown in world financial markets are already threatening this year's expected growth rate of 6 per cent. And some economists are predicting a significant slowing next year, with HSBC forecasting growth of just 4.9 per cent. While that's below most analysts' expectations it is a real possibility given that Indonesia's economy is driven by domestic spending and interest rates have risen by 1.25 percentage points since May to 9.25 per cent, with more rate rises to come. That [forecast] is really reflecting our feeling that the rate increases will feed into the economy at that time, says HSBC senior economist Robert Prior-Wandesforde. It's a double-whammy of weaker exports and higher interest rates. The man with his hands on the lever, new central bank governor Boediono, is confident Indonesia can overcome current challenges. It's as if we are on a boat amidst stormy seas, he told reporters last week. We have to stay calm, controlling the boat as best we can until the swings subside and we can see a better direction. The point is our boat is in good shape. He does have a point. Indonesia's economy grew at a surprisingly robust 6.4 per cent in the first half of the year as companies raked in profits from selling coal, gas and crude palm oil to China, India and Japan, amid record spending by local consumers on everything from mobile phones to cars. Foreign investment also surged as high commodity prices tipped the risk-reward ratio in investors' favour and followed positive government reforms including an easing in rules for expats and a new regulation that will cut the corporate tax rate from 30 per cent to 25 per cent by 2010. But in the last few months commodity prices have been dropping from their highs, hurting investor sentiment and leaving Indonesia even more vulnerable to a fall in domestic spending. In the last two months, commodity prices have fallen and the hot money has left the country, presidential candidate and former finance minister Rizal Ramli told foreign journalists in a panel discussion this month. There will be a correction. And the only adjustments that can be done are on domestic interest rates. If you want to stabilise the macro-economy you need to raise rates. But that will have a significant impact on investment and job creation. The problem for Indonesia is that when financial markets are in turmoil, investors look to lower their risk profile and emerging markets bear the brunt of that swing in sentiment. If you look at global money flow, it's not only Indonesia which is doing badly, other emerging markets in Asia and South America are also being hit, says Adrian Rusmana, an analyst at HD Capital. Ramli believes that any slowing in the economy will hit small to medium sized businesses the hardest. Ten years ago, big business overheated because of the financial crisis, he said. The small to mid-size companies were not great, but doing ok. Now, big business has recovered but the small to medium-sized businesses are the hardest hit in 40 years. Over the last five years, the Indonesian economy has been going very well thanks to commodity prices. The improvement in the macro-economy has been export driven. But there's a missing link in what happens at the macro and micro level. Standard Chartered economist Fauzi Ichsan agrees. When you
[wanita-muslimah] Indonesia's Poverty Trap
http://asiasentinel.com/index.php?option=com_contenttask=viewid=1447Itemid=32 Indonesia's Poverty Trap Lisa Murray 23 September 2008 It's an economic cliché, but as the rich get richer, this country's poor keep getting poorer Photo by Derrick Chang The tragic loss of 21 Indonesians who were trampled to death as they jostled outside a house in East Java to receive a cash handout of just 30,000 rupiah (US$3.20) has shocked the nation and exposed the plight of its poorest citizens. Politicians were quick to dismiss any link between the country's chronic poverty problem and last week's tragedy, citing a drop in the official poverty rate last year to 16.6 per cent from 17.8 per cent the previous year. But that is a fairly meaningless statistical improvement to the more than 19 million Indonesians who still live on less than US$1 a day. Moreover, almost half of the country's 225 million people live on less than US$2 a day. Rising food and fuel prices this year have hit hard for the bottom third of households, which spend 65 per cent of their income on food and drink. If Indonesia wants to significantly reduce its poverty rate, the Organisation for Economic Cooperation and Development says that its economy needs to grow at least 8 per cent a year. But that is looking virtually impossible for the next few years. Rising inflation, a sliding rupiah and the breakdown in world financial markets are already threatening this year's expected growth rate of 6 per cent. And some economists are predicting a significant slowing next year, with HSBC forecasting growth of just 4.9 per cent. While that's below most analysts' expectations it is a real possibility given that Indonesia's economy is driven by domestic spending and interest rates have risen by 1.25 percentage points since May to 9.25 per cent, with more rate rises to come. That [forecast] is really reflecting our feeling that the rate increases will feed into the economy at that time, says HSBC senior economist Robert Prior-Wandesforde. It's a double-whammy of weaker exports and higher interest rates. The man with his hands on the lever, new central bank governor Boediono, is confident Indonesia can overcome current challenges. It's as if we are on a boat amidst stormy seas, he told reporters last week. We have to stay calm, controlling the boat as best we can until the swings subside and we can see a better direction. The point is our boat is in good shape. He does have a point. Indonesia's economy grew at a surprisingly robust 6.4 per cent in the first half of the year as companies raked in profits from selling coal, gas and crude palm oil to China, India and Japan, amid record spending by local consumers on everything from mobile phones to cars. Foreign investment also surged as high commodity prices tipped the risk-reward ratio in investors' favour and followed positive government reforms including an easing in rules for expats and a new regulation that will cut the corporate tax rate from 30 per cent to 25 per cent by 2010. But in the last few months commodity prices have been dropping from their highs, hurting investor sentiment and leaving Indonesia even more vulnerable to a fall in domestic spending. In the last two months, commodity prices have fallen and the hot money has left the country, presidential candidate and former finance minister Rizal Ramli told foreign journalists in a panel discussion this month. There will be a correction. And the only adjustments that can be done are on domestic interest rates. If you want to stabilise the macro-economy you need to raise rates. But that will have a significant impact on investment and job creation. The problem for Indonesia is that when financial markets are in turmoil, investors look to lower their risk profile and emerging markets bear the brunt of that swing in sentiment. If you look at global money flow, it's not only Indonesia which is doing badly, other emerging markets in Asia and South America are also being hit, says Adrian Rusmana, an analyst at HD Capital. Ramli believes that any slowing in the economy will hit small to medium sized businesses the hardest. Ten years ago, big business overheated because of the financial crisis, he said. The small to mid-size companies were not great, but doing ok. Now, big business has recovered but the small to medium-sized businesses are the hardest hit in 40 years. Over the last five years, the Indonesian economy has been going very well thanks to commodity prices. The improvement in the macro-economy has been export driven. But there's a missing link in what happens at the macro and micro level. Standard Chartered economist Fauzi
