Iwan Azis

• Cornell University

The centripetal forces of agglomeration, reflected among others in the structure of the economy and the nature of interrelations among regions (interregional multipliers), limit the effectiveness of spatial policies. Meanwhile, the importance of social capital is revealed from the MSE survey. Social planners could improve the design of policies by...

The concepts and methodologies used to develop the survey questionnaires are discussed here. The dualism and inequality are not merely the results of policies but also the consequence of agglomeration forces and the interplay of policies and prevailing institution. On the other hand, potential benefits of the same forces could provide incentives fo...

How do institutional arrangements and social capital work, and do cases on the ground corroborate what has been conceptualized? Some case-based evidence of MSMEs in different regions provide clues to that question. The role of trust and local solution to achieve a particular goal, including fostering environmental-friendly activities, is highlighte...

Historical ‘source’ of dualism in Indonesia is first discussed, with a particular emphasis on the relevance of Boeke’s concept of dualism. Despite the presence of various policies to address the issue, the inequality between regions in the country is large by international standard. The productivity gap of micro-small enterprises and large business...

This open access book analyzes the dualism and inequality insofar as how it is manifested in interregional disparity and small enterprises. Using the case of Indonesia, the author considers how the general direction of policy should be to mitigate the effects of agglomeration forces leading towards concentration, and exploit the same forces by enco...

By measuring time-varying financial spillovers of five asset classes, we analyze the propagation of shocks originating in the United States and Japan into countries of Emerging Asia (EA). We compare the scale and nature of spillovers during the 2008-09 global financial crisis (GFC), the 2013 “taper tantrum” (TT), and the on-going COVID-19 pandemic...

Exploring the hypothesis that socio-economic discrimination contributes to conflict occurrence, we show that the experience of a large country that have gone through a big-bang shift from centralized to decentralized system and introduced direct local elections, confirms the link. Using the case of Indonesia, and by controlling for poverty, demand-...

Complacency and a false perception that markets will correct imbalances during two decades of ‘Great Moderation’ led to ‘Global Imbalances’. The low interest rates and a lack of proper oversight, combined with a perception that housing prices will always move north, brought the sub-prime crisis in the USA and the subsequent ‘Global Financial Crisis...

This chapter considers the principles underlying the design and implementation of early warning indicators . We argue that indicators based on quantities—especially balance sheet aggregates—are most likely to yield indicators that issue warning signals well before vulnerabilities have grown too large for policy makers to control. As shown in Chap....

When global financial conditions affect domestic conditions, the institutional details of how they are transmitted matter. Designing and implementing policies that address these spillovers need to carefully take these channels into account. As the prolonged period of ample global liquidity starts to fade or comes to a close, a lively debate has beg...

After the 1997/1998 Asian financial crisis, many economies in the region set out to rebuild their savings, sometimes to excess. Capital inflows further boosted liquidity after interest rates in the US and Europe fell in early 2000. The resulting combination of large savings and lower borrowing costs spurred credit creation and economic growth, espe...

Excess savings and rising capital inflows—especially since the early 2000s—gave Asia ample liquidity with lower borrowing costs. This would spur domestic demand and growth, helping begin the process of rebalancing the region’s economic structure. As this happened, the behavior of economic agents—banks, firms, and households—also changed. The prefer...

In contrast to the period prior to the 1997/98 Asian financial crisis, emerging East Asia today is a region with excess savings, particularly corporate savings. Beginning in the mid-2000s, liquidity was further amplified by massive capital flows, particularly bank-led flows, and subsequently by debt-led flows following the introduction of quantitat...

The 2008/2009 global financial crisis and the unprecedented policy response in advanced economies have a worldwide impact. The episode also led many to question the standard framework of economic thinking on regional integration, financial liberalization and their repercussions on income disparity. The paper argues that one needs to take a balanced...

The analysis so far has shown how global liquidity—boosted by easy money policy in advanced economies—has affected emerging markets, particularly in Asia. The focus has been on the implications on financial and macroeconomic stability and on the behavior of economic agents. It has also pointed to the limited effectiveness of standard monetary polic...

This book discusses the risks and opportunities that arise in Emerging Asia given the context of a new environment in global liquidity and capital flows. It elaborates on the need to ensure financial and overall economic stability in the region through improved financial regulation and other policy measures to minimize the emergent risks. "Managing...

The external environment is an important backdrop in determining economic policy. Economies with open financial systems and convertible capital accounts are sensitive to global market conditions. Even economies with less open financial systems are affected. Those with liberalized trade and partially controlled financial systems are also influenced—...

When global crisis struck at a time of great global and regional interdependence, contagion occurs; it can work via capital flows or through spillovers of the returns/yields on financial assets. The analysis in the paper deals with the latter. Focusing on the shocks in the United States and Eurozone bonds market, and using multivariate GARCH models...

To the extent that financial contagion from the United States and the euro area crisis has occurred in Asia, this paper focuses on the importance of strengthening the regional financial safety nets. By conjecturing that efforts to prevent and manage a crisis are the essence of providing such safety nets, the author argues that efforts made by Assoc...

By conjecturing that efforts to prevent and manage a crisis are the essence of providing financial safety nets, I argue that such efforts made by the ASEAN+3 officials especially in the provision of liquidity support during a crisis are far from adequate. The event of Lehman collapse in the fall of 2008 could be a game-changer in the global financi...

Applying the Institutional Model of Decentralization, the paper argues that the presumption that local democracy will impose accountability pressure on elected officials does not always hold. Even in a democratic system like in Indonesia, decentralization policy is welfare-enhancing only for the developed regions, not for all, exacerbating interreg...

Predicting a recovery from a crisis is always difficult, but it is particularly so with the 2008 crisis in the United States. How could a small segment of the financial markets known as subprime credit bring down the world’s largest economy into the worst recession since WWII? The resulting conflicts in policy responses are so severe that the short...

Decentralization policy by itself is not a panacea for problems of accountability. A model is developed to exemplify a condition whereby given widespread ‘capture’ in local elections, voices or people’s participation stands out as the most important factor that determines whether the decentralization system produces positive or negative local...

As discussed in the preceding chapter, the impact of a financial crisis can be very severe, creating conflicts of various types. We have also learned that formulating an appropriate policy response to a crisis is not easy, involving many trade-offs and complex chains of reaction, especially when numerous institutions get involved in business deals...

We study how endogeneity between welfare and institutions might make institutional reform more subtle. We use evidence from an in-depth field study conducted in five districts in Indonesia and build a model that illustrates how initial socioeconomic condition as well as past institutions generate institutional complexes, including the degree of loc...

Why slower growth and high inflation can occur concurrently, while in other cases growth can be non-inflationary? Why did aggregate demand policy sometime fail to work, given an orthogonal shock? This study ponders on these queries by estimating the aggregate supply and aggregate demand curves in four East Asian countries. Applying the Structural V...

Conflict in various forms is a natural consequence of the power of one party to take actions and decisions that affect others. It can be studied from many different standpoints. In policy conflict, the relative complexity or simplicity depends very much on whose interests are being considered as new measures are debated. Many policy issues are more...

A news report from South Africa reads, “Clothing and Textile Workers’ Union (SACTWU) members held a string several meter long with 40,000 pieces of fabric attached to display their agitation over cheap Chinese imports which has claimed thousands of jobs loss. Due to cheap Chinese imports over 67,000 jobs had been lost and more than 350,000 people h...

Global imbalances and financial crisis discussed in the preceding chapters were not the only contemporary issues that shaped the current and future landscape of the world economy. Since 2004, many countries also felt a significant shock prompted by a surge in the oil price, forcing them to look for the appropriate policy response that would produce...

History is typically the story of one party (unit of organization, segment of a society, or person) dominating another, in which the dominance can come in many forms and usually involves conflict at some point. But a conflict can go beyond just clashes between parties; it can include ideological differences between countries, regions, organization,...

The proportion of long-distance migrant birds at the border of Germany, Austria, and Switzerland decreased between 1980 and 1992 because winter temperature increased. Deterioration in the Amazon, observed in the Xingu National Park, has become more serious during the past few years. The melting of Glazier in many places, especially in the European...

A comment by an analyst-cum-investor reads, “A year ago, I didn't expect the U.S. economy to fall into recession in 2008 because I was confident consumers would continue to do what they do so well: spend money. I had plenty of company, and ultimately we were all wrong.” During the Fall of 2007, while working in Tokyo to prepare a manuscript for pub...

Although signs have emerged that some of the forces that caused the 1997-98 Asian financial crisis have begun to diminish and progress has been made in macroeconomic affairs, 10 years after the meltdown Indonesia's recovery is still among the slowest in Asian crisis countries. During the last few years, the relatively rapid growth of the financial...

The economics of decentralization implies that it generates efficiency improvement (higher growth) due to local government's ability to respond to the needs of local communities. However, this is not always the case. While policies do matter, this paper argues that institutional factors hold the key to the problem. The interactions among these fact...

Exchange rate volatility can be detrimental to growth and stability. For East Asian countries, a common basket system can be a way to reduce such volatility. By evaluating the weights of the dollar, the yen, and the euro in individual country's exchange rate, the paper shows that post-crisis fluctuations of regional currencies are no longer determi...

I. THE SETTING IKE most East Asian countries, Indonesia experienced a booming economy in the early 1990s. When signs of overheating appeared, the government was forced to tighten the monetary policy. Massive capital inflows resulted in the appreciation of the exchange rate (low international interest rates contributed to the supply of "easy money"...

This paper is concerned with the development of a cooperative analysis approach for use by Diplomats and Negotiators in resolving certain difficult conflicts. It employs concepts from economics and peace science without any diminution of the urgent need for superb diplomacy and negotiations skills. Its potential use for resolving the major conflict...

This chapter discusses Indonesia's experience with trade and external liberalization, emphasizing the policy dynamics and the socio-economic effects of liberalization. Section 2 analyzes the country's overall socioeconomic performance before and after liberalization. The interactions between monetary and fiscal policies and the general trend of soc...

In order to reduce the mounting pressure on government budget due to rising expenditures related to all sorts of subsidies, including those for the banking sector and domestic fuel consumption, the Indonesian Government has opted to cut only the fuel subsidies. Following the surge of the world price of oil, the size of the cut was huge, causing the...

Premier Wen Jibao, when asked about how the Chinese government would deal with the overheating economy as indicated by the expanding money supply, bank credit and fixed investment, in a Reuters interview in April 2004, said: “We need to take effective and very forceful measures to resolve those problems as soon as possible.” A year later, the Premi...

Managing financial sector under a liberalized system is always difficult; it faces a risk of financial crisis. Financial managers in most emerging markets, be it in the corporate, banking or public sector, have experienced such a challenge, and those in East Asia have learned the hard lesson during the 1997–98 financial crisis. Although efforts hav...

This article analyses the transmission of financial shock to household income distribution using the case of Indonesia. Presumably, those benefiting from currency depreciation and high interest rate during the crisis are the high-income groups. However, the same groups might lose since they were employed in sectors that are highly import-dependent....

Using a price endogenous model, this paper elucidates the detailed transition of a financial shock to socio-economic conditions. The model departs from a standard CGE framework in that a number of equations are estimated independently, and some parameters are derived from econometric equations rather than calibrated. In the light of the Asian finan...

The Setting The 1997-98 financial crisis prompted East Asian countries to seek a closer regional cooperation and policy coordination in the financial sector. There has been a strong desire to develop a regional self-help financial networking. The early proposal initiated by Japan to set up an Asian Monetary Fund (AMF) was shelved because of strong...

This paper introduces a network model (Analytic Network Process) for impact study incorporating feedback influences, capable of capturing and combining tangible and intangible factors by using ratio scales. Contrasting it with a hierarchy model, some distinct features are identified. While the two rely on pair-wise comparison matrix and its corresp...

Krugman used the Bernanke-Gertler model to explain the Asian Crisis. This model implies that macroeconomic shocks can decrease credit creation by reducing firms' creditworthiness or by eroding bank capital. Foreign banks in Indonesia should be less likely to restrict credit following macroeconomic shocks because they employ better risk management p...

Many models of the Indonesian economy cannot generate the large collapses in output and exchange rate experienced in 1997–98. The model in this paper was able to replicate the actual events by adding several new links. One new link is between the depreciation of the exchange rate and the deterioration of the balance sheets of firms, which are in tu...

A fundamental restructuring of intergovernmental relations involving decentralisation and expanded autonomy for provincial and local governments is under way in Indonesia. This paper explores the intergovernmental financial system that preceded the new General Allocation Fund (DAU), with particular attention to the old Inpres development grants. Li...

The transition from Asian financial crisis into employment and income loss is analyzed in details by using a structural path analysis (SPA) and a price endogenous model of computable general equilibrium (CGE) type. Indonesia is taken as a case study. It is revealed that the damage in the real sector has ripple effects on the services sector, reduci...

This paper demonstrates how economic reform undertaken in a developing country will impact not only macroeconomic variables but also income distribution between different household groups, particularly between rural and urban households. Unlike the well-known link to macroeconomic variables, the path connecting economic reform with income of rural-...

Urban areas1 are, in general, inclined to change dynamically: there is no question about that. An interest in this would lead us to examine the wonder of the dynamic processes of urban growth and decline. The primary purpose of this chapter is to obtain an exploratory insight into this wonder, through the window of the analytical method used in the...

Increasingly, environmental issues have become an integral part of economic planning and decision-making in many countries. The consensus seems to suggest that the solution approach would be to internalize the externalities, since many of the environment-cum-economic issues involve problems of externalities. There seems to be little disputes about...

The model for Indonesia in this study is constructed for the specific purpose of policy simulation under different scenarios of trade, particularly with Indonesia’s major trading partners2. In line with such a purpose, the trade block is disaggregated based on the basis of commodity types and countries of destination. The baseline period used (1977...

This paper presents a simultaneous model of central-regional transfers based on a combined supply and demand-side framework. The model is designed specifically to evaluate the impacts of selected allocation criteria associated with such government transfers. As an application, the model is used for evaluating the allocation criteria for INPRES, whi...

This paper demonstrates how the of Analytic Hierarchy Process (AHP) was useful in rationally measuring the intangible and complex impacts of the Trans-Sumatra Highway (TSH) built in the late 1970's. Specifically, the task, using the AHP, was to analyze the overall impact of the highway according to the perception of local people, not that of the re...

A controlled trial of fortification of crystalline monosodium glutamate (MSG) with 810 micrograms RE vitamin A/g was undertaken in an area of endemic vitamin A deficiency in Indonesia. Powdered MSG was used to mask the yellow color of the vitamin A. Fortified MSG was marketed through ordinary channels in five villages in the program area and five n...

PIP: The first part of this paper presents a model-framework for explaining the urbanization and its relationship to the national development process which is relevant in the context of Indonesia and many other developing countries. Unlike most of the framework upon which an urbanization model is usually developed, the one presented here takes into...

Acknowledgments

The aftermath of the 1997 financial crisis brings about a strong desire among East Asian countries to develop a regional self-help financial networking in order to stabilize the region's financial sector. Some progress towards the creation of a regional financial arrangement (RFA) has been made since t he announcement of the Chiang Mai Initiative (...

Task Force on Debt Restructuring and Sovereign Bankruptcy The opinions expressed in these papers represent those of the author(s) and not The Initiative for Policy Dialogue. These papers are unpublished. Do not cite them without explicit permission from the author(s).