What’s new in the April issue of BIES

by Pierre van der Eng

This issue’s ‘Survey of recent developments’, by Katy Cornwell and Titik Anas, starts with a topic that will keep Indonesia enthralled into July 2014, and possibly beyond: Who are the candidates for the upcoming legislative and presidential elections? There is no clarity at this stage, but there is good news from the macroeconomic front, despite continued global gloom. Indonesia’s economic growth slowed marginally in 2012, caused by anaemic growth in mining output and a contraction in government spending. Inflation remained in check, but the authors explain that prices could come under pressure in 2013. Sustained growth underpinned an unprecedented net inflow of foreign investment in 2012 – at least by Indonesian standards – and falling export revenues and increasing imports caused a concomitant high current account deficit. The resulting depreciating pressure on the rupiah triggered action by Bank Indonesia to stabilise the exchange rate.

Cornwell and Anas bring mixed news, however, from the microeconomic front. They note two rulings by Indonesia’s Constitutional Court that point to its ability to create uncertainty in Indonesia’s business environment, particularly in the natural resources sectors. They also examine the significant increases in minimum wages in regions across Indonesia, which are likely to benefit the 37% of all wage earners employed in the formal sector. Although concerns exist that these increases may impede Indonesia’s international competitiveness and foreign investment inflows, the new wage rates broadly reflect the rising cost of living. Cornwell and Anas also discuss evidence of increasing income inequality in the past decade, which they argue may be related to recent booms in both commodity production and prices. To conclude, they draw attention to Indonesia’s poor performance in HIV/AIDS prevention relative to most other Asian countries.

In the 2013 installment of our annual series ‘Indonesia in comparative perspective’, Vikram Nehru asks what Indonesia can learn from India’s industrialisation. He compares the development of India’s and Indonesia’s manufacturing industries, examining the dimensions of growth and productivity, as well as the surrounding economic context and industrial policies of both countries. His comparison notes several issues that reduce the comparability of India’s and Indonesia’s industrial development, and points to policy differences that both governments could consider.

The paper of Teguh Dartanto and Nurkholis investigates poverty dynamics in Indonesia – that is, the characteristics of those households on the margin of being poor or non-poor and that consequently move into and out of poverty. Using household data from the National Socio-Economic Survey (Susenas), they find that a quarter of the 12% households that were poor in 2005 were still poor in 2007, while three-quarters moved out of poverty. A smaller number fell into poverty, resulting in a 9.2% poverty rate in 2007. The authors identify several characteristics that help to explain fluctuations in household poverty status. For example, poor households that gain access to microcredit increase their chances of moving out of poverty. In contrast, marginally non-poor households that add one household member face an increased chance of falling into poverty. Dartanto and Nurkholis also conclude that estimates of poverty, and therefore of the number of households on the margin, are very sensitive to the definition of the poverty line.

Susan Olivia and John Gibson examine changing living standards in Indonesia by probing the consumer price index (CPI), which is often used as a convenient deflator in comparing changes in otherwise nominal income or wage data over time. The authors explain how BPS (Indonesia’s Central Statistics Agency) estimates monthly changes in the CPI. Following a methodology that has been applied for several other countries, they use household expenditure patterns from four rounds of the Indonesia Family Life Survey to approximate changes in the weights of items in the average household consumption basket. They then use these data to estimate Engel curves for consumption items, based on Engel’s Law, to calculate the so-called CPI bias for households with the same level of CPI-deflated incomes. The procedure yields some significant results that need to be taken into account in timebased comparisons of deflated incomes and wages. In particular, they demonstrate that the CPI bias during 1993–2008 was, on average, a notable 4% per year.

Kunta Nugraha and Phil Lewis contribute to the ongoing discussion about measuring inequality in Indonesia, something also noted in this issue’s ‘Survey of recent developments’. They explain that Indonesia’s widely published Gini ratios are based on household expenditure data from the now annual Susenas survey, rather than on household income data, and that there are good reasons to assume that the expenditure data under-estimate income inequality. Nugraha and Lewis note that the definition of household income in Susenas is not straightforward, because different forms of non-market income (such as income in kind, and consumption of own production) may have to be accounted for. They use Susenas data to approximate market and non-market household incomes and conclude that the income-based Gini ratio in 2008 was 0.41, compared with their estimate of an expenditure-based Gini ratio of 0.31. However, taking account of different types of non-market income potentially reduces the income-based Gini ratio significantly, to 0.21. The paper concludes that measures of income distribution are sensitive to the degree to which non-market income is accounted for.

Our regular collection of abstracts of recently completed PhD dissertations on Indonesia draws attention to the constraints placed on education by the Asian financial crisis; the role of sustainable supply-chain management in the cocoa industry; the dynamics of entrepreneurial human capital; and the consequences of the ASEAN Free Trade Agreement on garment manufacturers.

Our book reviews section discusses an anthology celebrating Hadi Soesastro’s writing from 1974–2010; a collection of essays responding to the work of Joan Hardjono; an examination of the history of credit in Southeast Asia; and a study of how regionalism and the G20 has influenced Asia’s recovery from the global financial crisis.

This is the first issue of BIES arranged by the journal’s new managing editor, Ben Wilson. I expect that we will continue to produce an academic journal that meets the highest possible standards and that informs public interest and public policy in various aspects of Indonesia’s economic development. Selamat membaca!

The April 2013 issue of the Bulletin of Indonesian Economic Studies is now available. For more information, visit Taylor & Francis Online.