Why Nation Fail?

In recent time ago, I heard conversation between Russ Robert and Daron Acemoglu in Economic Library (Econlib). This podcast program is held in every Monday and undertaken by Econlib. I am very pleasant when hear every conversation in Econlib, because all topic related with economic. Economic is my major when I study in university, so I always try to encourage myself to study economic and rehearse my ability in understanding economic concept.

One of topic that is interesting to me is Why Nation Fail?. This podcast talks about the reason why some nation failed, but other nation succeed. Actually, there are many arguments that illuminate the reason behind that. One argues that natural resource is main factor in enhancing economy, but another argues that culture is very important and determines the country performance. These arguments can’t explain well about the question.

In this book, Acemoglu and his friend try to explain the main reason why nation fail. They argue that the welfare create by incentive, and incentive created by institution. So, institution is very important for country performance. The efficacy of institution in enhance economy has been proved by many countries. Investment will be flow drastically if institution in that country is supported. If you look countries that underdeveloped, one reason is because they don’t have good institution that supports economic activity. So, one thing that must be underscored is the need for government to repair its institution if they will attract investment.

The country is fail because its institution is very bad. The investor doesn’t be attracted to invest because it’s creates great transaction cost. Conversely, if institution is supported, the investor will come and build factory in that country. []

The Impact of SEZ in Economic Development

SEZ in Indonesia is a new policy. Although government of Indonesia has decided that Bintan, Batam, Karimum as SEZ, the new SEZ has already developed again. This SEZ is based on Law 39 year 2009 about Special Economic Zone. Then, government derives into government regulation (PP No. 2 Tahun 2011) about the implementation of SEZ. These regulations underlay the implementation of SEZ. 

SEZ is aimed for enhance economic, not only economic growth, but also economic development. There are some difference between economic growth and economic development. Economic growth just regard about enhancing economy which appear in increasing GDP. While economic development talks about how government decreases poverty, absorb more labor, and diversify sector of production. SEZ is intended to enhance economic development in order to increase welfare of society. 

Why SEZ is very crucial? One of main problem in Indonesia economy is the lack of direct investment. Direct investment is one component of GDP. If direct investment increase, also it will increase GDP. Unfortunately, investment in Indonesia is still low. There are many reasons why Indonesia is very poor to attract investment. One reason is lack of infrastructure quality and quantity. Another reason is the difficulty in pursuing license from government.

In the SEZ, all obstacles which deter investment to flow to Indonesia will be undermined. Government wants to provide good environment for investor by creating zones which is easy to invest. SEZ provides that, so we hope that the economy will be enhanced not only in SEZ, but also in district and province where SEZ is built.

If there are many investor come in SEZ, it means that there are many investment in that location. For doing business, investor need factor production. So, they will absorb local people to work in their company. Another benefit when investor coming is increasing output that can be exported to foreign country. So, the SEZ exactly can enhance economy in other to create welfare to society. []

To Attract Investor by Special Economic Zone

Since globalization is take place, each country competes to develop its economy, especially to attract direct investment from abroad. They strive to create good environment for investors in doing business activity in order to make investors feel comfort, so that they would retain their money. 

Investment is much related with the attractiveness of the country. There are many factors which determine the willingness to invest, such as bureaucracy, resource potential, availability of infrastructure, social and political condition, fiscal and non-fiscal incentive, etc. Those factors will determine the willingness to invest, especially direct investment from abroad. So, every government has to focus in those factors in order to create good condition for investment. 

The government of Indonesia tries to attract investment both from abroad and domestic. The government strives to attract investor by many strategies, especially by creating special economic zone. This strategy is appertained new in Indonesia. Actually, we have had same strategies by creating special economic zone in Batam, Bintam, and Karimun. But those special economic zones are different with this one. This policy tries to make special area which is given fiscal and non-fiscal incentive, good infrastructure, and one stop services, and many other facilities. 

Special economic zone is a new policy in which Indonesia tries to implement in order to attract investors. If Indonesia can create good environment for investor, it can be easy for Indonesia to get investment. But until now, Indonesia still faces many challenges and obstacles to achieve it. Why this happen? I think that the problem is related with the lack of government role. In other words, the government of Indonesia still can’t create good environment for investment with good policy. However, there are many obstacles for investment which come from government conduct, such as the difficulty for taking license.

The idea for creating special economic zone comes from the argument that there are still many obstacles for investing in Indonesia. If special economic zone is implemented, all of obstacle will be decreased. Infrastructure will be built in line with investor need, permission process will be easy, and also government will give fiscal and non-fiscal incentive to attract investor. So, we hope that special economic zone will create more opportunity for job seeker, enhance gross domestic product, especially within province. []

Allocating Time for Writing and Reading

Since I got jobs, time to write and to read is decrease. It’s not my desire. Nevertheless, I strive to allocate time effectively and efficiently for writing and reading about anything, especially about economics. Because I work in institution related with economic policy, so that it’s appropriate if try to illuminate my point of view about economic problem. It sounds simple, but it’s difficult to do. There isn’t much time to write as well as time to read. If there isn’t enough time to read, automatically I can’t write optimally. 

My challenge now is how to allocate time to read and to write besides doing my main activity in my office. I realize that my main activity is work in government institution. But, I can ignore our habit which is always writing and reading, so that I communicate my idea about economic problem. So that, these two habits have to do simultaneously in order to improve my capacity as economist. As we know, economist has to good ability in writing as well as speaking. Economist idea is needed as advice for policy making. 

So, what I have to do in term of allocating my time effectively and efficiently for writing and reading? First, I have to pledge to myself that I will implement this commitment. Actually, I have planning about how I should write. In my commitment, I strive to write one article every day. That article about everything, although most of them is economic topic. I feel easy when I write economic topic because I have studied economic theory in undergraduate education.  Second, try to do activity as fast as possible. I mean if we can do each activity quickly, we have additional time to conduct other activities. So, I have to try myself to finish that activity well and quickly, including work in office, writing, reading, researching, etc. As a reflection, I work very lumbering. Actually I can do quickly if I focus for doing that activity. But sometimes, I don’t concentrate my mind for that activity. Consequently, it need more time for finishing. But start from now, I pledge to do one work before move to other work quickly. It can make me more quickly to finish and defeat the challenge in that activity. 

After I write this article, I will rearrange my schedule for writing, reading, and working. I work from Monday until Friday. I haven’t much time to write in those days because I go to office in the morning, then come back to home in the night. So, there is no time to write and to read again. I just have time to write and read in Saturday and Sunday. My latitude to do those activities is very limited. Perhaps I have to allocate time to write and to read when office hour is finished. Approximately 5 pm until 6 pm, I have one hour to write and to read before go home. If I can use those time consistently, it means that every day I have one hour to write and to read about economic issues in Indonesia. And also, I just want to allocate our focus to write in English, because in this time I am studying English. I will accustom myself to write in English as a preparation to take IELTS test in June 2012. So, I have one month to prepare myself in facing test. In that time, I have to learn English well. Working can’t disturb me, although it can decrease my focus to learn English. I strive to focus. [] 

NB: I apologize if there are grammatical errors. I am still studying English now.

Good Environment for Investment

Investment is very important for economic development. As we know, investment is one of factors which can create more jobs and more opportunities to society in conducting economic activities. So, almost all countries strive to attract investor for investing. But, only a few countries can create good environment for investment. 

According of investment sources, there are two type of investment such as foreign investment and domestic investment. Then, according of investment type, investment is divided into two kinds such as direct investment and financial investment (indirect investment). Direct investment is created by foreign investor or domestic investor in which it directly use money on building infrastructure, factory, etc. While financial investment is just put in financial market and it can be taken suddenly by investor.

Financial investment is very plenty in Indonesia. There is much money flowing into our financial market. Then, that money can go out into our financial market suddenly if there is shock or destructive economic phenomenon. So, foreign direct investment is more important for enhancing economy and gov’t should focus on inviting FDI. I think that gov’t should not regard about how to increase financial market, but has to focus for attracting direct investment from domestic or foreign.  

Inviting investment, especially FDI is not easy task. There are many challenges to attract FDI in Indonesia. In other side, our environment still doesn’t support investment. I mean that there are many obstacles which hinder investment activity such as bureaucracy, incentive, etc. While other countries, especially Malaysia, Thailand, and Singapore also try to attract investment. So, we compete with other countries to influence investor in order to conduct investment in our country.

Good environment is not only related to availability of resources, but also to easiness in doing business. If business process is lumbering, that can make investor reluctant to invest in our country. So, Indonesia should not depend in resource advantage, but has to repair investment process, so that investor will feel comfortable in conducting investment. This strategy should do by center government and local government. Both center and local government play important role in attracting investment. They have to strive to make their environment good for investment. Change has to be begun in government conduct connected to measures to attract investor. []

NB: I apologize if there are grammatical errors. I am still studying English now.

Fiscal Decentralization: Fail or Success?

Since 2011, Indonesia embarked fiscal decentralization with enacted and promulgated Law 22/1999 and Law 25/1999. Law 22/1999 emphasizes on Local Government Management, while Law 25/1999 emphasizes on fiscal balance between center government and local government. 

After more one decade of fiscal decentralization implemented, surely we hope that targets can be reached. One decade is not short time to undertake change. But, reviewing output of fiscal decentralization perhaps makes us disappointed. As experts said, there is no equalization within region after a decade of fiscal decentralization. It means that fiscal decentralization can’t achieve its target in order to create equalization within region in Indonesia. One of trait which proves that judgment is unavailability of equal distribution of welfare and population within region. As we know, most contribution of GDP is rendered of Java. Java contributes above 50 percent of GDP, while others are remaining. Also, distribution of population is still ugly. People inclined live in Java or big cities. They presume that Java or big cities offer more and more money rather than small cities or villages. I don’t judge that it’s wrong choice because everyone eager enhances quality of live. So, they are craving to live in good place.

Decentralization aimed to create equalization within region still can’t be achieved. Actually, government has transfer fund more equal to districts. Center government provides more money for poor districts rather than rich districts. Poor districts are characterized by less natural resources, bad infrastructures, and low human quality. They acquire more money from center government than those rich districts. Hopefully, poor districts can use that money to enhance economy. They can allocate to finance infrastructure building and provide health care and education to poor people. Surely, if every poor district uses its fund optimally, it can enhance its economy and create more quality in human.  

But, if we look phenomenon now, poor districts are still poor. We witness that many poor districts can’t allocate their fund optimally. Perhaps they don’t have capability to manage their budget. So that, more money doesn’t assure more enhancing economy. More money has to be followed by capacity in budget management. Surely, one important thing is political will of local government to prioritize development in its region. If high public official doesn’t regard need of society, automatically there is no refinement in economic development.

We realize that fiscal decentralization doesn’t succeed until now. But, we have to strive to create more equitable distribution of welfare within region. Hopefully, it can be followed by more distribution of people. I think fiscal decentralization which is pro-poor districts is one of strategy to achieve equalization or well distributed of welfare. But, we have to equip with controlling of fund allocating. Controlling local government in allocating fund, perhaps it will create pro-poor budget or pro-infrastructure budget. Controlling may be conducted by NGO, society, and center government. []

NB: I apologize if there are grammatical errors. I am studying English now.