Wednesday, March 24, 2010

Pancasila & Islam in Indonesia

Recent surveys in Indonesia found that the large majority of respondents stated that they were convinced that Pancasila is still the most ideal ideology for Indonesia.

The "inclusive" Pancasila ideology that was formulated at Indonesia's independence 65 years ago and applied until today, is still the best political system for the country. Because, adhering to Pancasila, the nation's religious and ethnic diversity are recognized and are allowed to exist in harmony side by side.

Most Indonesians do not favour adopting a strict Islamic system in which sharia laws would enforce the wearing of head-scarves for women or stoning for adultery. The overwhelming majority support the Five Pillars of Indonesia's State Ideology which was formulated by the country's founding fathers led by Soekarno in preparing Indonesia's Independence in the years prior to 1945.

This philosophical formulation was later incorporated as the "soul" of Indonesia's State Ideology as expressed in the Preamble to the 1945 Constitution. The Five Basic Principles of the State are: 1. Believe in the One True God. 2. Humanity, 3. The Unity of Indonesia, 4. Democratic decision-making through consensus among representatives and 5. Social Justice for All.

With the adoption of Pancasila, Indonesia, depite the fact that Indonesia's population was and is predominantly Muslim, nonetheless, is not an Islamic State. It is, however, also not a secular state in the strictest sense of the word, since the Constitution determines that Indonesians believe in the One God. In essence, Indonesia's state ideology stands for pluralism, inclusion, tolerance, moderation, democracy, justice and non-discriminination for all of its citizens.

With the arrival of the Reform Movement in 1997 and in the post-Soeharto years, the Pancasila ideology was considered to be anti-Reform as Soeharto had reaffirmed the ideology to deny the existence of communism, western-style liberal democracy and fanatical religious teachings. During the following years of Reform and transition to democracy, however, Pancasila gained ground again among the silent majority.

The majority of Indonesian Muslims have long been more orientated to pluralism and nationalism. In three general elections (in 1955, 1999, 2004 and 2009) the winning political party has always been one that is based on nationalism rather than on one specific religion.Furthermore, Indonesia's two largest Muslim civil organisations, the Nadhlatul Ulama and the Muhammadiyah embrace Pancasila.

This article appeared earlier on www.businesstrendsasia.com

Wednesday, March 17, 2010

Why should China solve global monetary chaos ?

On 12 March 2010, UNCTAD released its policy brief, titled “Global monetary chaos: Systemic failures need bold multilateral responses”. According to the brief, amidst continued financial crisis, the question of the global trade imbalances is back high on the international agenda. A procession of prominent economists, editorialists and politicians have taken it upon themselves to “remind” the surplus countries, and in particular the country with the biggest surplus, China, of their responsibility for a sound and balanced global recovery. The generally shared view is that this means permitting the value of the renminbi to be set freely by the “markets”, so that the country will export less and import and consume more, hence allowing the rest of the world to do the opposite. But is it reasonable to put the burden of rebalancing the global economy on a single country and its currency? This policy brief contends that the decision to leave currencies to the vagaries of the
market will not help rebalance the global economy. It argues that the problem lies in systemic failures, and as such, requires comprehensive and inclusive multilateral action.

The international community has allowed global monetary incoherence to reign before and after the crisis. Indeed, “markets” were permitted to manipulate currencies in a way that made some sovereign governments and central banks look like penniless orphans. The need for a new approach to global macro-economic governance is more urgent than ever, because today’s currency chaos has become a threat to international trade and could
be used as an alibi by major trading countries for resorting to protectionist measures.

In fact, the calm after the storm of the recent financial meltdown did not last for long. Institutional “investors” are back in business in global currency markets. With their resurgence, countries are again facing huge inflows of hot money that cannot be put to any productive use, but which create severe price misalignments and trade distortions. The global “casino”, nearly empty a year ago, is crowded again, and many new bets are on the table. However, the
recovery in the real economy is modest at best. In fact, the rebound of stocks, commodity futures and currency trade in several emerging and developing economies since March 2009 displays the makings of highly correlated big new bubbles and the threat of a new round of financial crisis. Of even greater concern is that the crisis notwithstanding, faith in “market fundamentalism” is unswerving. That faith continues to sustain the naïve belief that a solution
to misalignment may be found by leaving the determination of exchange rates to unregulated financial markets.

The effects of the new exuberance on financial markets are adverse for countries with once-fragile currencies, such as Brazil, Hungary and Turkey. Exploiting the differentials between interest rates, the so-called currency carry trade in these countries and in the big financial markets of the North has become even easier today. Rates in the North are generally close to zero, whereas maintaining “confidence” in countries with weaker currencies – under the aegis
of IMF programmes since the onset of the crisis – has called for higher rates than before. The first results of the new “confidence” in weak currencies are ominous. An appreciation of the Brazilian real and the Hungarian forint has forestalled urgently needed gains in competitiveness and could again lead to severe overvaluation, a dramatic distortion of trade patterns and new imbalances.

Recent actions taken by some developing economies, such as Brazil, to intervene in foreign exchange markets have to be evaluated in light of the dramatic failure of the currency markets to get the prices right. Re-imposing a 2% tax on purchases by foreign investors of real-denominated fixed-income securities and stocks, for example, is not a marketunfriendly policy. Rather, such measures serve to safeguard the efficiency of markets for goods and
services by protecting their prices from becoming a punching ball of financial market prices, which are driven by an undifferentiated (if not irrational) appetite for risk. In the brave new world of liberalized global trade and finance, the treasuries of sovereign governments of the largest developing economies – and even some developed countries – can be seriously challenged by the power of financial flows. And in the absence of a truly multilateral exchange
rate system, each country naturally pursues whatever works best in the circumstances.

In fact, as a response to the current global crisis that originated elsewhere, China has done more than any other emerging economy to stimulate domestic demand, and as a result its import volume has expanded significantly. Private consumption is rising at breakneck speed. According to several estimates, Chinese private consumption increased by 9% in 2009 in real terms, dwarfing all the other major countries’ attempts to revive
their domestic markets. But even in the preceding decade, real private consumption, at an average 8% growth rate, was an important driver of growth, backed by wage and salary increases in the two-digit range and strong productivity growth. Unit labour costs (nominal compensation divided by productivity) are rising more there than elsewhere, resulting in a continuous loss in competitive power even with a fixed exchange rate. Expecting that China will leave its exchange rate to the mercy of totally unreliable markets and risk a Japan-like appreciation shock ignores the importance of its domestic and external stability for the region and for the globe.