Sunday, November 20, 2016

Sluggish global demand hits Japan exports; India demonetization loaded with risks; The rise of Indonesia

1 Sluggish global demand hits Japan exports (Straits Times) Japan's exports fell 10.3 per cent in October from a year earlier, Ministry of Finance data has shown, in a sign of sluggish external demand.

The result compared with the median forecast for an 8.6 per cent fall in a Reuters poll of economists, and followed a 6.9 per cent decline in September. Imports fell 16.5 per cent, versus economists' estimate for a 16.3 per cent fall. The trade balance came to a surplus of 496.2 billion yen, versus the median estimate of a 615.4 billion yen surplus.

2 India demonetization loaded with risks (Mihir Sharma in Gulf News) One week after India’s sudden declaration that 500- and 1,000-rupee notes were no longer legal tender, the economy is in chaos. And that’s perhaps because the policy was designed as much to shock and awe observers with the government’s command of the Indian economy as to control India’s “black money” problem.

What seemed at first to be a masterstroke by Prime Minister Narendra Modi now looks like a grave miscalculation. What’s changed in a week? Well, for one, it’s become clear that the government was simply too cavalier in its planning. Now that 86 per cent of India’s currency is no longer valid, the central bank has struggled to print replacement denominations.

You have to wonder if Modi truly sought expert advice, or relied once again on a small and trusted set of politicians to determine policy. India’s simply too big and complex for shock and awe. Large parts of the rural economy use cash for 80 per cent of transactions and have been hard-hit.

The government’s plan is likely to be ineffective in the long term. Economists agree it will have no effect on the generation of black money through corruption. Even in the best case scenario — that a significant proportion of the outstanding currency is destroyed — there’s no reason to suppose it was all black money and not the savings of regular citizens scared of harassment by tax authorities.

Modi has dropped dark hints that this is just the beginning, raising fears that business should now worry about of constant tax raids and the reopening of decades-old cases. In fact, that dark new age may already be here.

Even setting aside the painful adjustment, the long-term effects of this monetary shock on India’s informal economy could well be severe; a large proportion of marginal firms may not survive the loss of a fortnight of income. The informal financial sector — unregistered moneylenders who provide loans to businesses worth 40 per cent of total bank lending — will be decimated.

The costs to the government could be equally high. Modi’s administration has put political considerations over economic detail once too often — and this time, it’s severely dented its image for efficiency and practicality. Even if the long queues vanish in the next few weeks, that damage to the government’s reputation is permanent.

3 The rise of Indonesia (Elizabeth Pisani in The Guardian) Despite being a country of superlatives – most populous Muslim-majority nation, biggest exporter of numerous commodities dug or grown out of its generous earth, one of the world’s most enthusiastic users of Twitter and Facebook – Indonesia also remains, in the words of Indonesian businessman John Riady, the biggest invisible thing on the planet.

I’ve been hearing those same arguments since I first covered Indonesia for Reuters and the Economist in the late 1980s. Over the intervening three decades, per-capita income in Indonesia did indeed rise steeply to $3,300, over five times its level when I first lived there.

Which is great, but not as great as Thailand or Vietnam (between seven and eight times higher), let alone China (where per capita income is now close to $8,000 a year, 26 times its 1985 value).
For a country that has such extraordinary natural resources, and such an abundance of labour, 
Indonesia is arguably underperforming economically. This is in part because the scatter of its 7,000 inhabited islands creates extraordinary infrastructure challenges, in part because a torpid bureaucracy squashes innovation, and in (large) part because Indonesia’s miasmic legal system means no contract is secure.

The much vaunted “demographic dividend” will not deliver the pot of gold at the end of the Indonesian rainbow until all three of these things change. Now, for the first time since a brave but ill-prepared Indonesia declared its independence from Dutch colonists in 1945, at least two of these changes are under way.

That’s no small achievement in a nation as kaleidoscopic as Indonesia, where there are almost as many ethnicities, languages and belief systems as there are islands. The improvements in both infrastructure and governance are especially worthy of global attention because they are being propelled by the twin engines of democracy and decentralisation, both relatively new to Indonesians.

Though Indonesia’s current president, Joko Widodo, known as Jokowi, has made much of his support for infrastructure development, it is driven less by a well-planned push from Jakarta than by active demand from politicians directly elected in district and provincial governments. Though progress is slow, those demands are gradually overcoming the hurdles raised by the country’s geography.

However, neither decentralised democracy nor Jokowi himself have managed an assault on the third major hurdle to Indonesia’s self-actualisation: the legal quagmire referred to by his predecessor as the “judicial mafia”.

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