Solution from Wealth Inequality

Inequitable wealth distribution is unequal distribution of assets among the citizen. Indonesia’s economic boom is further disadvantaging the millions of poor people in the country. The country's economy is growing at about 6 per cent, which is nearly double Australia's growth and second only to China. It shows a good stable economy, but it is not helping everyone. As with other developed countries, Indonesia is becoming gradually more and more unequal. The top 20 per cent hold 80 per cent of the country's wealth (refers to the Pareto Principle). The top 5% of the nation’s earners control half of its wealth, and the top 20% bring in 86% of capital income, including interest and stock market gains. Some scientists say that economic capitalism and new-age feudalism are widening the gap between the rich and poor. The rate of return for owned capital exceeds the overall rate of economic growth. Thus, families and individuals who control wealth will accumulate it at a faster rate than the economy can produce it and so will control a much larger portion of the economic pie. The rich get proportionally richer, and the poor get proportionally poorer. Unless something happens to alter the status quo, this trend will continue. There are many solutions to tackle this challenge. An economist, Thomas Piketty, offered a highly publicized solution: worldwide income redistribution. It is defined as the transfer of income, wealth or property from some individuals to others through social mechanisms, such as taxation, monetary policies, welfare, charity, divorce or tort law. He then espouses a stringent global wealth tax that would allow the government to manually smooth over the wealth gap. He recommends reinstating high tax rates on upper level incomes (progressive income tax system) and increasing inheritance taxes. Based on data, when top tax rates were high from 1933 to 1980, the bottom 99% incomes grew fast while the top 1% incomes grew slowly. In contrast, after 1980, when top tax rates were low, the bottom 99% incomes grew slowly while top 1% incomes grew fast.” Another economist, Joseph Blasi, suggested a corporate profit-sharing, employee stock ownership, and stock option plans in which employees own chunks of the company or take part in its earnings. He obtained his idea from America Founding Fathers’ original vision of widespread land ownership. Broad-based capital ownership, which today is formed in stock, real estate, and other investments, was necessary for the republic to exist. As modernization came, we had to find a way for citizens to have some ownership of the technologies of the future. Though it has been criticized for the risky business of stock, he suggest large government tax incentives for this corporate broad-based profit sharing. Two common types of governmental redistribution of wealth are subsidies and vouchers (such as food stamps). These "transfer payment" programs are funded through general taxation, but benefit the bottom earners, who pay fewer or no taxes. While the persons receiving transfers from such programs may prefer to be directly given cash, these programs may be more palatable to society, as it gives society some measure of control over how the funds are spent. Some other scientists also recommend reducing tariffs on commodities to cut the cost of living, as well as providing more jobs for society. In my opinion, Indonesia desperately needs to overcome the economic and social gap issues with various measures of distribution of wealth. It is argued that the most urgent action today is utilizing the subsidy mechanism to make it more effective and right on target. Apparently, the new elected president, Joko Widodo, made a good step when he insisted on reducing the ineffective petroleum subsidy which consumes about 40% of the state’s budget and always caused a deficit budget balance every year. He argued that the cars and trucks which are owned by the ultra-rich and middle-class have mostly benefited from this gasoline subsidy, instead of the bottom earners which is actually the targeted group of this subsidy. In this way, the money which is taken from the petroleum subsidy will be reallocated to food security subsidy (agriculture and fisheries sectors) and developing small-scale businesses, education, health, and infrastructure. Automatically, providing a bigger budget to those important sectors will encourage economic as well as social development through the provision of jobs for society. Moreover, a big subsidy for the agriculture and fisheries sector will support food self-sufficiency and encourage young people to be farmers, fishermen, or fish farmers, and thus they will be keen to develop their hometowns, instead of going to the city. However, the problems of wealth inequality in Indonesia are not only related to rich and poor people, but also linked with the western and eastern part. It is a fact that country’s development as well as population density is mainly concentrated on the western part, especially on Java as a centre of everywhere, added to a faster-growing Sumatra. As a consequence, circulation of money, jobs, and wealth are located in the western part. It has worsened with the reality that most of the money created from the exploitation of natural resources is abundant in the eastern part, such as oil, gas, and mining, and it is taken to the central government and the biggest part of the money is used for western part development and only a little slice remains for the easterners. As a result, there is a movement in Papua to separate from Indonesia because of this structural injustice. In the future, it will be the task of Joko Widodo’s administration to ensure more balanced development by enhancing the speed of eastern area development, especially in East Nusa Tenggara, Maluku, and Papua, which recently have been significantly left behind compared to other parts. (LFN)

Financial Planning, Sooner or Later

Source: Indonesia Expat Magazine, Issue 122, August 2014, page 25 This is an article regarding the importance of financial planning lessons from the early age of childhood. At the beginning, the writer criticizes the action of parents and schools who are neglecting to teach money and personal finance lessons to their children. As a consequence, the kids, as they grow up to be consumers, do not understand anything about saving and spending. The writer then gives five tips to get kids to understand this issue. Firstly, the kids must be taught to save money to buy things they want. Stressing the importance of waiting for a favorite meal or toy can teach them how patience can be rewarded. Secondly, parents should take their children to shopping around in the market in order to compare prices. This will help them to choose essential products and services more carefully. Next, the children must be involved in decisions and choices of how a limited budget is spent. In this way, they learn whether certain products are necessities or luxuries. Moreover, as kids get older, they have to know what the negative impacts of credit cards are and which they should avoid to use it. For instance, parents can illustrate how compounding high interest can keep people trapped in debt. Finally, young adults must understand about the concept of tax. Since tax is inevitable and sometimes annoying, showing your kids the positive aspects of tax as public money can ease their disappointment. In my opinion, the writer brilliantly provides awareness for parents that their children should have the knowledge about financial management skills as soon as possible to prepare them for the real world. We definitely know that children in this modern day are different from children in previous times in terms of their needs. In former times, children didn’t have much desire for toys since traditional childhood games were still dominant as their main leisure activities, so parents did not need to spend as much money for children apart from their education costs. However, consumerism and the need of gadgets are two mainstream habits of children today. Parents have to expend extra money for their various children’s needs. Therefore, it has become the task of parents, schools, and even society, to teach our young generation how to save, invest, and spend money in an effective and efficient way. LFN

Against Market Trends

Yogyakarta’s Beringaharjo traditional market has changed, becoming more clean.   The floor is still wet, and the market springs out of small rows in narrow corridors.  But not long time ago, this traditional market had dirt floor and the sky for the roof, before it was re- located to the building in order to make  it clean and organized. 

The traditional market is a real life picture of people struggling to generate income with their own resources, without a helping hand from the government.   Outside the market, many poor, disabled and very old people sit around waiting for money.

Different areas and floors are designed for different products.  Unlike in supermarkets, where the price is fixed and the staff are paid, in traditional market you can bargain for what you think is a fair price for the products. 

In Beringharjo Market, sometimes it is not easy to find imported fruit like fat Chinese apples, juicy Hawaiian pineapples or flawless Washington apples.  Instead, you find the mango, soursops, guava, star fruits, limes, avocado and a variety of local fruits not sold in the supermarket because they are blemished. This fruit does not keep as well as their genetically modified cousins in supermarket. 

Now days more supermarkets are being built, with the product prices not much different, the owner invisible, with young people as sellers not sunburnt aging women with crooked teeth. What would these people do, where would they go if the supermarket replaces all the traditional ones? (FH)

Summary from www.desinawar.blogspot.com

ISIS Crisis, Yazidis Refugees Fleeing North to Syria

This is news of the Yazidis Tribes of Iraq who are fleeing to Syria due to a threat of genocide by the Islamic State of Iraq and Syria (ISIS). The Yazidis are among the quarter of a million Christian minorities who fled their homes after “convert or die” ultimatums from the ISIS militants. At a bridge connecting Iraq and Syria, they crossed over with their families, children and few belongings. They were then trapped in sweltering conditions in the exposed mountain region, many of them surviving without food or water for days. In response to this, the United Nations has warned that a mass genocide of refugees in the Mount Sinjar region of northern Iraq could still happen “within days or hours”. Moreover, a draft UN report has cited that women are being executed, captured, branded as slaves, and sexually assaulted. The world therefore urgently needs to recognize the severity of the humanitarian crisis. Fortunately, the mission of dropping essential supplies to the refugees has now taken place. More are being planned for the rest of this week and beyond. The Department for International Development (DfID) said that the latest missions involved dropping over 3,100 reusable water purification containers and 800 solar lamps that can be used to charge mobile phones that would aid direct communication with the refugees. In my opinion, the brutality of ISIS is unacceptable and beyond the limits, though I am a Muslim who also aspires to live in a pure Islamic state. Nevertheless, a Khilafah (Islamic State) establishment is not imposed in a violence way. Later, the Indonesian Government responded quickly by rejecting the ISIS’s ideology as well as blocking their spread inside our society. In line with the government position, most Indonesian citizens are condemning ISIS conduct because this country is characterized with more moderate Islam which embraces the diversity of its people. Unity thus is something that we must maintain for a long time. (LFN)

Susilo Bambang Yudhoyono Maintains Status Quo in 2015 Budget

The article narrates the proposed 2015 state budget which appears to indicate an attempt to maintain the status quo. In the draft state budget, the President of Indonesia, Susilo Bambang Yudhoyono (SBY) who is heading into the succession process in October 2014, has proposed no plans to reduce spending on subsidies, despite energy subsidies swallowing 15 percent of the state budget of Rp 2,020 trillion (US$172 billion). SBY instead raised the allocation for energy subsidies to Rp 363.5 trillion from the Rp 350.3 trillion in the 2014 budget. In addition, inefficient state spending was also reflected by the fact that SBY has maintained the current status quo in terms of distributing funds to ministries. Soon after it is published, the president-elect, Joko “Jokowi” Widodo, complained that the fuel subsidy is still too big and insisted that there is so much spending that could be more efficient which would provide greater fiscal room for reforms. In other words, the lack of fiscal room for development and growth-generating programs means that Jokowi’s campaign pledge to increase economic growth to 7 % within five years may not be achieved. He actually hopes that fund allocations for development programs grow over time, instead of seeing the enlargement of growth by mandatory and subsidy spending. In my opinion, a conservative 2015 state budget proposal will have both positive and negative impacts. The current government is apparently acting carefully and giving much consideration of the unstable condition of the world economy today. It means that the baseline of budget allocation is based on conservative macro economic assumptions. In detail, there are variables which are taken into consideration, such as: (i) economic growth stipulated at 5,6 percent; (ii) the inflation set at 4.4%; (iii) Rupiah’s exchange rate to the US Dollar upheld at 11,900 with a 6% interest rate; (iv) Indonesian crude oil price established at US$ 105 per barrel; (v) lifting target of oil and natural gas fixed at 2.1 million barrels per day. By doing this, it can be seen that the priority of the SBY administration right now is political and economic stability, instead of a drastic budget change, after a volatile presidential election. I think it is the right measure to ensure that the succession process will run in smooth way. However, the conservative budget allocation has been the subject of criticism toward SBY that he performs lacks program innovation. It can be viewed from the spending of ministries which is formed on the same pattern every year. The latest budget’s structure also shows that there is no ‘performance-based mechanism’ applied there, as some ministries with questionable track records in budget management are still able to receive higher funding. Moreover, funding for the Public Works Ministry which is responsible for growth-generating infrastructure projects, will stand at Rp 74.2 trillion next year, or Rp 300 billion less than was earmarked for 2014. This is in contrast to the increased allocation for the Defense Ministry, which will receive Rp 95 trillion, or Rp 11.7 trillion more than this year. SBY also maintained high allocations for ministries frequently under the spotlight for their poor budget disbursement and corruption, such as the Religious Affairs Ministry, which has been earmarked Rp 50.4 trillion, the fourth-largest fund allocation of any ministry. Although government officials have described the budget as a “baseline”, meaning it will offer ample space for the new government to revise it, I argued that any drastic alterations would not be possible. In practice, major changes in mandatory spending will be very difficult to implement. This will lock in the new government if they want to push for reforms. Next year, any chance of spurring economic growth would only come through a brave move to hike fuel prices and allocate the funds to sectors considered as productive in having a multiplier effect on the economy, such as infrastructure and tax incentives. I believe that the growth target can be reached if Jokowi is brave enough to cut the fuel subsidies, which are painful in the short-term, but attractive for the medium-term to long-term. (LFN)