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economy. But then financial sector has become some developing matter that dominates the real sectors very massively so that (currently) the real sector has to accept the role of pillow for the financial sector. The global crisis is a structural simultaneous movement, where the financial factors have burst out as bubbles not in only one or two sectors but also in almost of all the sectors, such as the bubbles in properties, cars, equities, credits, commodities, et al. the next impact of all of them is the turn of recession in real sectors. In America itself, the company of General Motor class has just laid off about 1,500 workers, will be followed by other companies to lengthen the number of unemployment. In brief, the root of the emerging problem is the disconnectivity among real sectors and financial sectors. not matching or synchronizing ; imbalance in economic terms or inequality in more radical words; both sectors have caused the financial sectors cut from real context as is disclosed by Walden Bello. Global Crisis Transmission Almost all the policy takers in this country assume that the global crisis exposing the domestic economy will come through the mechanism of trade transmission with all derivations. This assumption is not wrong, although not right. Neo-classical economists try to explain that the process of propagation or transmission of global crisis and its impact on other countries, including Indonesia, is through international trade multiplier (ITM) and international finance multiplier (IFM). ITM in essence says that if a large country economy (like America) weakens or falls, automatically its import demand to other countries will decrease, causing impact chain. The problems occur when the emerging countries such as China, Europe Union countries, even Asian countries (such as Singapore, Japan, or India) trading with US will also fall down. Of course the following impact of ITM will be suffered mostly by small countries, say for example Indonesia. On the other side, IFM is regarded as a transmission that is theoretically and historically more relevant to happen in Indonesia context. IFM will operate through a balance sheet from various financial institutions and international fund manager, investing in various countries. When the share value falls, automatically the companies will lose wealth, so as the households holding portfolios, triggering demand degradation in accord from the whole people in the world. Simultaneously, the foreign investors (remember that the foreign ownership of the company shares as a whole in Indonesia reaches 60-70 percents, while of the banking world is about 50-60 percents) will choose the strategy of restructuring the allocation portfolio of insecurable assets to ascertainable assets, and will end impacting on capital outflow. Massive sales will depreciate the share price and the currency value of the deported country, ending in pressing the net value of the domestic financial institution assets. The falling asset values will force the companies to recapitalize or inject capitals to prevent bankruptcy or breakdown so that the fund demand to domestic economy will increase.
Ironically, for Indonesia, the capital flight and demand pressures happen simultaneously with the high growth of domestic credits and the lowly increasing fund of third parties. All of these potentially create liquidity crisis pressing the interest rate upwards. The falling asset values, high capital price (and its interest rate) with the consequential liquidity crisis, can be categorized as a monetary crisis if they occur in a large scale. This will continue to stop the capital flows to real sectors (in the realm of public interest), that the economic crisis phenomena will be completed in a state. The propagation of global financial crisis hitting Indonesia and continuing effect on real sectors, is exacerbated by the vulnerable Indonesia economic structure. In industry sector, the practical capacity rate of production equipments in 1996 was still 85 percent but currently (2008) is left 50 percent, even most of them has reached critical number of 30 percent. Indeed this will affect the domestic production performance, moreover if it is related with the manufacture export performance and structure, where 68 percent of non-oil & gas Indonesia export currently are primary products. Indonesia will be crushed by China because of their manufactured products, although by low value-added and technology it will be competitive to fill the holes of existing trade. The vulnerable national economic structure is also shown by the growing dependence of national food on imported products. To compare, in 1998 Indonesia can still produce and sell soybean, corn and cowmilk for domestic needs. Currently, almost 70 percent of soybean products spread in Indonesia are imported. Depending more on imported products, not only of the raw materials but also of food products will indeed contribute negatively considerably to real sector development in Indonesia. A Lesson for Indonesia The whole picture above certainly shows that it is soeasy to transmit the effect of a global crisis to the real sector through banking and financial systems. The crisis experience in Indonesia, both in 1983-1984 and 1997-1998, always starts from the falls of Money and capital markets, and not from real sector crisis. This shows that Indonesia has not any freedom to face any crisis both from outside and from inside (read : the vulnerability of domestic economy structure). The dependence is primarily triggered by the same liberalisation regime just driving a more severe socio economic crisis in the future. This is the chance for us as civil societies to drive the emergence of a systems more ideal and better for us. There are several important points to think about in defining a new Indonesia economy : (i) this financial entity can be seen conventionally anymore through common institutions because the networks have been much more sophisticated, (ii) the importance of government interference thgouth regulation creation and tightening in derivative market practices so that the new innovation that is more undercontrolled , and (iii) the government must not be afraid of returning to a protective economy for international repairing.