HOW AMERICA'S FISCAL CLIFF POLEMIC FINALLY ENDED

After being stuck on dead end for long, ne­gotiations over budget between the White House and Chairman of US Parliament John Boehner was finally showing progress int the past few days. Both parties still had to synchronize their views of significant is­sues before finally arriving at an agreement expected to happen at year end.

Some controversial matters tike tax and America’s Health Service System, Medicare, were overshadowing the negoitiation. Each party had to find compromise to avoid dead end.

According to some resource, the discussions ran more significantly in the past few days after both sides communicated more intensively, however de­tails of the meeting agenda was still kept as secret.

Over the past few weeks, the Obama admin­istration and Republic Party were negotianing about ways to overcome tax cutting issues and slashing of state’s expenditure which would be effective by next year. The White House and Republic party had det forth proposals respectively in overcoming fiscal problems known as fiscal cliff.

The Republic Party wished that the Government axed state’s expenditure, a proposal rejected by the Democrat Party. Meanwhile the Democrat Party had proposed impose higher taxes, which was rejected by the Republic Party. All in all over the past few weeks disagreement broke out on whet had to be done to taxa­tion policies. Meanwhile leaders of the two poles were debating about ceiling of the state’s debt.

The indications of progress in the process of negotiation was that both parties agreed not to make array statement about the negotiation. Word was out that a member of the Republic Party said that in Con­gress, normally good progress in negotiation evident when both poles refrain from speaking to the public.

The Republic Party was waiting for Presi­dent Obama's step to determine the amount of bud­get slashing being agreed as an approach to balance promised to the people of America. However, the two poles remained optimistic about the prospect of mu­tual agreement between the two. This was reflected in President Obama’s statement that he wished to reduce deficit, but being done the balanced and re­sponsible way.

Previously both sides were doubtful that any agreement would be arrived at. The Republic Party was still guessing the extent of axing of state’ ex­penditure to be agreed by Obama while the White House was still waiting for the size of tax increase to be ugrred upon by the Republic Party.

In the end President Barrack Obama in his speech constantly called out to all people to support his tax policy, i.e. to increase taxes for the rich in America. This was to neutralize debate between the While House and the Republic Party in the US Con­gress which was still trapped in unending argumenta tion about policy package aimed at reducing deficit.

And yet America was facing a Fiscal Cliff in the a matter of weeks. The high ranking officials of the two poles were defending their respective posi­trons in interviews with some electronic media.

Heed of the US Congress John Boehrer said that the negotiation was not making any progress. Meanwhile US Finance Minister Timothy Gefthner who spoke in the name of the Government said that the Republic Party group needed momentary rest from the negotiation package on economic policy, however they would finally agree on increase of tax tariff. This was an important part of the US Government’s ef­fort to raise USD 1.5 trillion from lax for the next 10 years.

To them, the present situation was definitely difficult. They were trying to find out about the future directions. Probably the Obama administration would allow more room to know the next step. Boehner confirmed the Republic Party approved increase of tax tariff amounting to USD BOO million in 10 years.

However they were of opininion that the step must be taken by stopping some tax cuts, instead of increasing tax. In the eyes of the Republic party, if tax tariff were increased, economy would be hard to grow. Some income were derived from small busi­ness.

Open statement as such would be common practice in a negotiation, which means it was still a far cry from agreement. What was said by politicians in public open debates very often did not reflect what was said in a closed meeting. This time both sides were aware of the short time they had before axing of budget spending and tax increase of USD 500 billion started in January next year.

Members of the Congress of both parties stated that the series of closed meetings which was going on today was not productive, just like debates on TV. Policy makers set target to accomplish a two step agreement before year end. The first step was related to the intial stage of expenditure-slashing and changes in tax codes to be effective next year.

At the second phase, policy makers were obliged to revise the tax code of ethics and entitle­ment program of social welfare. Although both sides were persistent, Geithner and Boehrer and other nego. tiators signaled there was still room for negotiation to arrive at common agreement by year end.

The White House was still opening poten­tials for change toward realization of Medicare and Medicaid beyond the proposals set by the Republic party. However, the Republic Party was expected to come up with specific offer first. The agreemet included increasing age limit to above 65 years to oblige rich Americans to contribute more to their hos­pital care treatment, and to slowdown increase of Social Welfare liquidation.

Boehrer disclosed that the proposes revisions for Medicare service had been discussed with Presi­dent Obama in a meeting on 2011 last on increasing debt limit About that Social insurance, the program that gave benefits to retired employees and the dis­abled, Geithner stated that the White House was to discuss possible revisions. However, the revisions in the program could not reduce deficit.

Previously, the Republic Party set forth a new proposal for reduction of deficit to the White House in the form of tax increase amounting to USD 800 bil­lion, half of what was proposed by President Barrack Obama before. The White House spontaneously re­jected the proposal. However, the proposal signaled the limit to be approved by the Republic Party.

The offer was set forth a few days after the White House openened negotiations about their proposal. By initial offer from both sides, the parameter set by the two poles for further negotiation was get­ting clearer. The proposal being forwarded included prospects of slashing of Medicare en other health in­surance worth USD 600 billion in 10 years. Previ­ously Obama proposed a figure of USD 350 billion.

The proposal would clearly slowdown in­crease during liquidation of Social Insurance, the step most opposed by by most members of Congress of the Democrat Party. Among the content of package was on income from tax, which the Republic Party believed it could be pocketed without increasing tax tariff.

The Republic Party sent their proposal to the white House after getting Boehner’s signature and other leaders of the Republic Party including Head oil the Budgeting Committee is US Congress Paul Ryan. Paul had his objections to the proposal of tax increase either in time when he was still in Congress or when he was candidate of US Vice President flanking Mitt Romney. His support was important in all process of agreements.

In the end the polemics on Fiscal Cliff was expected to end well to both parties in the spirit of Win-Win solution. All not just for the sake of Ameri­ca's economic recovery but for rebound of the rest of the world. (SS)

Business News - December 19, 2012

INDONESIA’S ECONOMY STILL UNDER EXTERNAL PRESSURE

Each time toward year end, people’s activities business people tens to mount. In the modern sector, those who were in the moneymarket and capital market struggle head over heels to reap as much profit as possible whereby to attain the maximum.

The success of cooperative societies in making big profit normally had the implication of employees being better paid or enjoying big bonus. Hence they could celebrate new year’s eve the merry way and welcome 2013 with great zest.

The same was also happening in the real sector. Business activities which were related to fulfillment of public consumption tend to mount up. Modern shopping centers were offering various products with competitive price and quality. Price war by way of discount war was inevitable especially in old stock of goods.

Therefore it came as no surprise that people’s shopping and consumption were the biggest contributor to Indonesia’s economic growth beside investment. Such should be most gratifying because what was happening in Europe and America was slowdown in the consumption sector.

Amidst global recession today, Indonesia’s economy this year was projected to grow at 6.3%. Therefore, toward year end it was only natural that neighboring countries like Malaysia, Singapore and Vietnam were aggressively launching campaigns to promote their malls shopping centers.

Indonesia was now like a beautiful girl glanced by many men due to her appeal, i.e. the high economic growth potential, and emerging middle class. Today the number of Indonesia middle class was not less than 40 million people with average expenditure of USD 20 and up per day.

In terms of tourist destination, Singapore had the Orchard Road as shopping center, while Malaysia had the Bukit Bintang and the Kuala Lumpur City Center (KLCC). Unfortunately, Jakarta’s malls were sporadically located and not being integrated with business centers and icon of the city. The two neighboring countries were more aware of the habit and behavior of the rich, i.e. shopping and dining than Indonesia. For that matter, hotels and tourist centers should be linked with malls or shopping streets.

Indonesia still had Bali as national tourism icon. This one island was a strong magnet which draw local as well as foreign tourists. During holidays, Bali was the main preference of local tourists and favorable option for foreign tourists thanks to the panoramic view and rich cultural heritage.

Such was a brief illustration how the economic state of a nation which grew positively contributed to the growth of tourism. Amidst slowdown of global economy, Indonesia up to quarter three 2012 had succeeded in attaining the second biggest economic growth in Asia. In spite of judgment by many circles that Indonesia’s growth was unsound and vulnerable, the fact was undeniable that a potential generation had emerged to play the role as economic propeller.

In the future, what needed to be reformed by the Government was to promote the tradable sector rather than the non-tradable sector by was of injecting reward to the tradable sector that they might grow. It must be understood that growth based on, and enjoyed by, the non tradable sector with relatively low absorption of labor, was not recommendable and not advantageous.

Not less important was Gross Domestic Product (GDP) which today was concentrated in Java (57%) and Sumatera (23%) only must be better distributed to the Eastern part of Indonesia. Accordingly, building of inferior basic infra structure and energy supply outside Java must be enhanced.

Another black spot was Indonesia’s downgraded ranking in economic competitiveness from 50^th to 46^th of 144 countries which called for attention. If the main cause was slump in the main variable of appraisal like corruption and bribery, the these two variable must be eliminated. Also unethical acts in the business world like violence and crime, and the cost incurred, must be eliminated. By such effort, Indonesia’s economy would not be built on fragile foundations.

The Following are 10 Indicators of Indonesia’s Unsound Economy by INDEF Version. There were a number of structural problems which would become part of the Government’s prioritized agenda, i.e. high but corroded economic growth; low economic competitiveness worsening trade deficit fiscal stimulus hindrance by subsidy; debt yielding bureaucracy; good banking performance but with low contribution to the real sector; open unemployment lessened but increasing informal sector; people’s stagnated welfare; imbalance in inter-regional economic development; the agricultural sector being edged aside; high dependency on supply of renewable energy.

Provided that these classical problem could be overcome one by one, surely the economic prospect of next year might continue achievements of 2012. Moreover to consider optimism that breezed out recently that the world’s economy in 2013 would be prospective compared to this year, in spite of overshadowing uncertainty.

Business people rated that the uncertainty was due to many factors, such as debt crisis in developed countries especially Europe, political tension in the Middle East, North Africa, the Korean Penissula, and Sino-Japanese tension. In addition to that also anomalous climate and potential natural disaster at global level and skyrocketing oil price in case of conflict in Iran.

The situation had the potential to trigger protective acts among many countries and unhealthy measures to protect their domestic market. The result was mounting competition among nations to rule trading and investments, which means that domestic economy needed to be strengthened.

As known, world’s economic growth in 2012 was posted at 3.5% slower than that of 2011 which reached 3.9%. With uncertain global economic condition, the effect of Indonesia’s economy was inevitable. As a whole, up to 2012 Indonesia’s economic growth was predicted to be 6.3% or lower than that of 2011 at 6.5%.

Business players evaluated economic condition of 2012 with focus on strategic issues and crucial issues like national competitiveness, oil subsidy, infra-structure and logistics, investment climate, condition of micro, small and medium business (UMKM), investment climate, and domestic market stormed by foreign franchise. The conclusion was Indonesia’s competitiveness being low and infra structure being low by quantity.

Projection of economic growth 2013 which was around 6.3% - 6.7% was not too far different from projections of the National Economic Committee (KEN) at around 6.1% - 6.6% in spite of global economic slowdown by year end. The target would be met if the global economic condition was getting better than estimated, but the growth rate would most likely be at the lower range if Europe could not manage to get their head above water by 2013.

Indonesia’s economic growth would next year be supported by consumption and investment. Household expenditure would contribute around 2.6% - 2.9% of 2013 growth while investment contributed around 2.7% - 2.8% while export-to-growth ratio would be only around 0.2%. Meaning, Indonesia’s economic growth in 2013 would rely on domestic strength.

Meanwhile national economic growth in 2012 was estimated at 6.3%. This figure was the basement level of KEN’s estimation set forth by end of 2011, i.e. 6.3% - 6.7%. Today Indonesia’s economy was in the growth-process of the business cycle. Historic data showed that normally Indonesia’s economy grew in a seven-year cycle. Indonesia entered a growth phase in March 2009. So there was big opportunity till 2016.

One note worthy thing was that the business world was sort of skeptical about projection of Indonesia’s economy next year. They predicted with pessimism that Indonesia’s economy in 2013 would only be in the range of 5.5% - 6%. The reasoning was weakness in infrastructure, bureaucracy, space (Land) planning, and legal certainty. This was not mention illegal import which constituted 30% of total import to cause injury on domestic industry.

One thing was certain that by next year there would be three labor intensive industries which would be the locomotive of Indonesia’s economy i.e. the manufacturing, trading and service sectors and transportation/telecommunication sectors. There three sectors were the labor industry sectors to grow in 2013. However external pressures would still be overshadowing Indonesia’s economy because of the long and winding process of debt crisis solution in Europe and the fiscal cliff problem in the USA which was still stumbling for way-out.

If the Fiscal Cliff remained unsolved till end of year, chances were America would fall over the recession cliff; such was indeed extremely unpleasant and most undesired. The hope was that the fiscal cliff problem which entangled Barrack Obama’s administration would be solved before deadline so America could take off in their economic process by next year.

Business News - December 19, 2012