Oil Price, Green House Gas and Economic Growth

The rising in oil price to its psychological level has undoubtedly created some growing concerns among the world’s society. Many solutions were being offered, from the most rational unto the irrational one. The concerns are mounting since the OPEC meeting has a very little impact on the price stabilization. Observers point out consumption rate as the main cause of the oil price surge. Restriction in consumption is viewed as a necessary condition to stop the oil price hike. This restriction is also viewed as a main condition to reduce the green house gas emission as a result for the abundant use of the fossil fuel. But is this restriction is necessary? Wouldn’t it only lead to a slower economic growth? Is it right to sacrifice a long term achievement to a short term shock? This article aims to answer all of these questions.

Restriction in consumption equals to impotent ion

From the weekly time series data ranging from 1997 until 2007, the trend in oil price hike will surely continue. An oil price projection using the Auto Regressive Integrated Moving Average (ARIMA) model which I had done in Asia Pacific Initiative Forum at Keio University, justifies the presumption. The oil price will go beyond its psychological level at US$ 100/barrel, and will continue to skyrocketing. Moreover, the oil price consumption growth rate is believed to play an important role in the oil price formation.

With the inelastic structure of oil price in terms of demand, this projection is making sense. The inelastic structure creates a huge inertia momentum so that the current hike in the oil price could not refrain the consumption level. In other words, if the presence of alternative energy that can be used massively is still vague, the oil price will continue to hike beyond imagination.

Restriction in consumption is most likely to correlate with the slower rate of oil price hike, but this action has a major consequence. With the restriction, every economic agents will be forced to refrain their economic activities especially which corresponds with the using of fossil fuel. This restriction, instead of becoming a solution, will create problems which have a long run impact. The most noticeable fixture is the obstruction in economic growth. Although it is not the only source of the society’s well being but economic growth is still viewed as a necessary condition for welfare.

The economic growth slow down will constrain the creation of new job opportunities. The discourage workers resulting from the lack of job will contribute to the rising in unemployment rate. These unemployed people will become poor because the absence of sustainable income. In aggregate terms, this will only hampers the community welfare. Restriction in consumption is a form of impotent ion, because it functions as a constraint in empowerment. In addition, the act of postponing oil consumption in current time will not shift the long term price structure. This hypothesis is a rational one since the fossil fuel is un renewable resource so that in the future, with the absence of alternative energy, the fossil fuel consumption will go back to its natural level and leads the price to continue rising.

The Solution

Question then arise; what policy is the most suitable to stop the rising in oil price? The answer is quite simple: do nothing! This answer surely raises one’s eyebrows but it turns out to be the most realistic solution. As describes earlier, every intentions to intervene the price through restriction in consumption will be in vain since the price will go back to its natural level.

There will surely be some sacrifice with the do nothing policy. The most apparent sacrifice is the collapse of industries, but it is important to note: this will only happens in the short run. In the long run, with the industry’s increasing economies of scale, industry will have the capability to substitute the fossil fuel with other form of energy that is cheaper and friendlier to the mother earth.

This process could go on even without government intervention since the forcing tools come naturally from the rising in oil price. It is surely a good news not only for a long run economic growth but also for the sustainability of the Mother Nature.

The Hypothetical Kuznets Curve

Nicholas Stern, a British economist and a former World Bank’s official, published a review which described global climatic change and its economic impact in the late 2006. In the review, Stern mentioned about the Kuznets Inverted U Curve.

The curve briefly describes the existence of a quadratic relationship between economic growth and the emission of green house gas. In a low level of income, the bigger the income the bigger the oil consumption which results a higher emission level. But the curve has a turning point whereas in a high level of income, the bigger the income the lesser the oil consumption which results in a lower emission level.

Based on the theory, I make an analysis through a Vector Auto Regressive model which aims to see the relationship between GDP growth, the oil consumption rate and the emission rate. The result is quite similar to the curve’s description whereas in the long run, with the rising in the world’s GDP growth, the oil consumption rate will be decreasing resulting in a lower level of emission.

With all the logic describes earlier, it is wrong to restrict consumption, because it will happens naturally with the rising in price. The ability to develop alternative energy will increase along with the world’s GDP growth. With the do nothing policy, in the long run we will have more stable economic growth and cleaner environments.

The Need for Debt Cancellation; the Fact of Resource Drain in Indonesia

For years, the Indonesian government has a dominant dependency on the foreign debt to cover the budget deficit in the national budget (APBN). These debts are basically aimed to reach the Economic growth through the budget deficit policy. But, one could understand that this massive dependency has become major sustainability problems in the recent years, Indonesia has fallen into a debt trap. Theoretically if the external debt as a proportion of GDP exceeds 20-25 per cent, there is no luxury of increasing foreign borrowing, particularly in circumstances where it is likely to be counterproductive. Further foreign borrowing, in order to achieve what would be a temporary interest rate advantage, would question the country's credit standing; would increase the drain on the economy from foreign debt service payments; and expose the country to any sudden change in international sentiment. The fact is, Indonesia are now facing over 45% debt to GDP ratio.

The ignorance from the government in term of reducing the dependency from the foreign debt has drained the revenue resource in Indonesia. The result is that Indonesia is no longer spending a large part of its yearly budget on the basic needs of its populations, due to having to use it to pay off its debts. The proportion of debt repayment compared with the tax revenue has clearly gave a clear description of how the domestic resource being drained.

In 2007, there are 41.45 percent of the tax revenue (PPh and PPN) being drained to cover the debt payments. The condition has resulted in the loss of suppleness in the national budget to use its domestic revenue for reaching the development goals such as reducing unemployment rate and eradicating poverty. In 2007, Indonesia spent 24.3 percent of its budget on servicing debt, compared with 3.08 percent on health, 0.06 percent on employment and 10.3 percent on education. The needs to pay its debt have undoubtedly driven the government to have a bigger proportion of natural resource based revenue. So, besides creating a problem in the people’s welfare, the burden of foreign debt has also created a massive depletion of the natural resource. The fact of deterioration of the natural resource because of the external debt burden has been sounded by WALHI on the CGI Forestry Meeting 26th Jan 2000. They said that The international and domestic macro-economies including public debt and international financing are intimately related to the shrinking of Indonesia’s forests. International aid and loans make the Government of Indonesia dependent on rich countries and tend to drain resources from the South to the North.

In other words, deforestation increases as a direct reflection of the pressure to pay back principle and interest on national debt and actually reflects national and international social injustice. The need for state revenues (foreign exchange) has driven many developing countries towards debt-orientated development modes for many years. The result is that these countries must now pay for their increased debt through exploiting their natural resources. Combined with the fact that financial institutions provide loans for environmentally damaging projects, such policies are yet another underlying cause of forest destruction and degradation. Besides that, financial demands often cause the accumulation of levels of loans for projects, which have a tendency to be beyond the government’s effective control. A case in point is the ADB and Japanese government loans for the Philippine forestry sector.

These loans must be repaid in foreign currency through increased exports which are typically linked to the over-exploitation of natural resources. In other words, foreign debt has created more problems by export-orientated natural resource management, which will almost certainly destroy the resource base. For the international scoop, this gigantic drain of resources operating for more than a quarter of a century has changed neither the status of the dependant economies, nor the nature of their relations with the developed countries of the North. It contributes, on the contrary, to the ever increasing concentration of wealth, at national level in favour of the dominant classes of the countries of the South and at international level in favour of the countries of the North. It explains in large part the dramatic increase over the last few years, in intra and international inequalities and in relative and absolute poverty.

International debt repayment constitutes one of the forms of transfer of surplus produced by the countries of the South to the North and of that produced by the workers of the South to the capitalists of their own countries and to those of the North. This has tended to increase the rate of labour force exploitation in the South. In this way, developing countries and newly emerging market economies have had to transfer to their creditors, an annual average of 3.68% of their GNP (Gross National Product) during the decade following the crisis (1980-1989). In the past six years (1997-2006), marked by a series of financial crises and a growing polarization of the international capitalist system, this transfer rose to 6.20% of GNP.

So, if the external debt can cause all the trouble, why does the Indonesian government make the debt for the first place? As the Harrod-Domar Model suggest, the rate of economic growth can be achieve by accumulating the capital. If there is a savings gap, or in other words the capital accumulation is less than needed, the gap should be filled by borrowings from abroad. But this model has a major shortcoming that is the dependency on foreign debt along with the economic growth. Our concern is, the government still uses this obsolete model which in fact creates problems as mentioned above. Besides the failure of the model, the Indonesian government is often has unclear purpose for making the debt.

For example, back in the early 70’s when Indonesia had a major windfall profit because of the oil boom, the number of external debt had also increased tremendously. One could understand that at that time the rate of economic growth can be boost even without making debt.

So at that time, the government had an ample amount of money, because of the debt and the oil revenue, without knowing the priority of development. This error has undoubtedly creates problems in present and future generations. The Need For Debt Cancellation All of this phenomena has triggered the idea of having a debt cancellation, as the Alternative Treaties that were being established by “Concerns and Pledges of Development and Environment Social Movements and Non-Government Organizations (NGOs)” in the Earth Summit on 1992 that says the foreign debt is the most recent mechanism of the exploitation of Southern peoples and the environment by the North, thus adding an extra burden to the historical, resource and cultural debt of the North to the South; the more Southern countries pay the debt, the more they owe -- has generated massive net financial transfers from the poor to the rich, thus perpetuating a process of decapitalization, impoverishment and environmental destruction that has devastating consequences for the South; there are also negative impacts to the peoples of the North with taxpayers' money bailing out banks, growth in unemployment and an increase in drug abuse; decisive action on the debt will make resources more available for the promotion of socially just and ecologically sustainable development models; the indebtedness of Southern countries is rooted in a development model which is not responsive to the needs of the majorities of their populations, but rather involves the harmful exploitation of people, resources and the environment of Southern countries, through adverse terms of trade, trade protectionism and the power wielded by international capital by, for example, transnational corporations.

The main idea is the foreign debt in Indonesia only functions as a burden in the economy. There are massive resource drains that create a major shortcoming for the people. This resource is transferred to the creditor country which benefit them most and has a negative effect for the Indonesia’s budget sustainability. In fact, the foreign debt originates in the continuing economic dependence from the creditor countries, from which they continued to acquire manufactured goods with the increasingly lower income from their agricultural and mining exports.

To cope with this imbalance, Indonesia were obliged to accept foreign capital loans, with which they also sought to construct infrastructures and achieve a first stage of industrialisation (both tasks naturally entrusted to companies from the creditor countries), endeavours which not only failed, but turned out to be far more expensive than expected, implying even greater debt.

The gradual and partial cancelling the Indonesian debt is the consequence to the evidence of resource drain. The cancellation is therefore the tacit recognition of the collapse of a perverse model of development aid that must be substituted by more efficient and truly fair measures ensuring the presence of poverty alleviation and the natural resource preservation program in Indonesia.

Wrapping Things Up: Solution without Debt

Although the external debts have more flaws than benefits, the Indonesian government still holds its initial standings that is making more of the debts and refusing all the possibilities for proposing debt cancellation. The fact of resource drain has been presented repeatedly but there is still no change in position. The argument of the governments is always the same, they argue that they don’t have any other alternatives in covering the deficits whereas the proposal for debt cancellation will clearly shut the doors of making new debts. As far as I concern, the problems do not solely rely from the debt strategy, but it depends heavily in the success of strengthening the revenue side. The dependency on the debt, the external debt to be more specific, is the consequence of the government incapability in increasing domestic revenues so that every time the government wants to increase its spending, the debt is always be the dominant source of financing. Besides that, the easiness of drawing more debts has cause the government to be infected by the lazy fiscal regime. So the most suitable remedy in curing the debt dependency illness is by the tax reform. This solution is might be not the best of all but for the time being it is the most possible solution.

Pertumbuhan Ekonomi Untuk Siapa?

Pertumbuhan ekonomi merupakan salah satu tujuan pokok pembangunan nasional, sehingga tidak heran bahwa pencapaian target pertumbuhan ekonomi seringkali dijadikan sebuah ukuran untuk menilai kinerja pemerintah. Jika saja premis ini benar maka tahun 2007 akan menjadi sebuah tahun yang memungkinkan pemerintah untuk memanen pujian dari khalayak. Betapa tidak, sepanjang tahun 2007, suku bunga Bank Sentral AS berpeluang untuk turun menjadi 4,25%. Tren ini tentunya akan membuat ekonomi Indonesia lebih prospektif untuk mengejar pertumbuhan di atas 6%. Akan tetapi, tujuan pembangunan nasional tentunya tidak melulu tertuju pada pertumbuhan ekonomi semata. Pembangunan nasional akan segera tercapai jika terjadi pertumbuhan ekonomi di satu sisi dan pemerataan di sisi yang lain. Ekonomi memang sedang bertumbuh akan tetapi pemerataan belum sepenuhnya terjadi sehingga pemerintah belum layak untuk dipuji.

Kinerja Pertumbuhan

Pertumbuhan merupakan kinerja pokok perekonomian suatu negara sementara pemerataan mengacu pada pemerataan kesempatan kerja dan berusaha, dengan kata lain pemerataan akan terjadi bila masalah pengangguran teratasi dengan baik. Pertumbuhan ekonomi yang diharapkan Indonesia adalah pertumbuhan yang berkualitas dimana pertumbuhan yang terjadi memiliki sensitifitas terhadap pengurangan pengangguran dan kemiskinan. Tetapi sayangnya, faktor sensitifitas inilah yang tidak terekam dalam pertumbuhan ekonomi Indonesia.

Hal ini tentunya tidak lepas dari lemahnya landasan fundamental perekonomian Indonesia pada beberapa tahun ke belakang.. Kondisi ini dapat dilihat dari rendahnya angka pengganda uang yang dicapai oleh lembaga keuangan di Indonesia. Fakta ini dapat diartikan bahwa pertumbuhan jumlah uang primer tidak dibarengi dengan pertumbuhan jumlah uang beredar pada level yang sama. Dengan kata lain, lembaga keuangan di Indonesia gagal dalam menyalurkan dana yang dimilikinya ke sektor riil (sektor produksi). Seperti kita ketahui bersama, kinerja sektor riil tidak secemerlang saudaranya yaitu sektor finansial. Sementara sektor finansial sedang berada dalam masa keemasannya, sektor riil justru semakin terpuruk. Coba saja kita lihat, pada tahun 2004 dan 2005 pertumbuhan sektor industri pengolahan non-migas berturut-turut hanya mencapai 7,9% dan 5,9% yang berarti masih dibawah target yang rata-rata sebesar 8,56% pertahun. Dan yang cukup mengkahwatirkan adalah terjadinya trend perlambatan pertumbuhan. Sementara itu dari sisi penyerapan tenaga kerja, pada tahun 2004 sektor industri pengolahan hanya menyerap 13 ribu orang, yang berarti juga masih dibawah target yang sebesar rata-rata 528 ribu orang pertahun. Permasalahan ini ditenggarai terjadi karena iklim investasi yang tak menentu yang menyebabkan banyak perusahaan gulung tikar. Tingginya biaya produksi di sektor ini juga merupakan faktor lain, karena besarnya biaya “siluman” akibat ekonomi biaya tinggi. Industri tekstil misalnya, industri ini mengalami trend penurunan yang cukup signifikan sebagai akibat dari tingginya biaya energi, harga jual garmen yang turun 5-10% sementara biaya operasional naik 10% setiap tahunnya dan banyak perusahaan tidak mampu memanfaatkan peluang pasar internasional karena kekurangan modal kerja. Industri elektronika merupakan contoh yang lain, industri ini tenggelam sebagi akibat penurunan daya beli masyarakat dan kurangnya daya saing produk elektronika dalam negeri.

Paradoks Pertumbuhan

Sejatinya, jika perekonomian mengalami pertumbuhan, maka penyerapan atau permintaan tenaga kerja akan meningkat. Akan tetapi sungguh patut disayangkan, kondisi di Indonesia menunjukkan sebaliknya dimana perekonomian mengalami pertumbuhan namun pengangguran tetap persistem atau sulit untuk turun. Kecenderungan ke arah munculnya paradoks tersebut telah mulai tampak dalam empat tahun terakhir dimana pertumbuhan ekonomi meningkat dari 3,7% (2002), menjadi 4,1% (2003), 5,1% (2004) dan akhirnya 5,6% (2004). Namun di sisi lain, tingkat pengangguran terbuka juga meningkat dari 9,1%, 10,1% mejadi 10,3% dan akhirnya 11,9% pada periode yang sama.

Paradoks ini ditenggarai terjadi akibat adanya kendala struktural, seperti perbedaan sektoral yang tajam, dimana sektor yang bersifat padat modal mengalami pertumbuhan sedangkan sektor-sektor yang bersifat padat karya mengalami stagnasi. Sektor pertanian misalnya, sektor yang memberikan kontribusi rata-rata sebesar 44% dalam penyerapan tenaga kerja dalam lima tahun terakhir hanya memberikan kontribusi terhadap pertumbuhan ekonomi masing-masing hanya sebesar 0,64% pada tahun 2001, 0,51% pada tahun 2002, 0,49% pada tahun 2003, 0,50% pada tahun 2004 dan 0,37% pada tahun 2005. Sementara sektor-sektor ekonomi yang menyerap tenaga kerja lebih sedikit, kontribusinya terhadap pertumbuhan ekonomi jauh lebih besar. Tengok saja sektor perdagangan yang menyerap tenaga kerja rata-rata hanya sebesar 19% dalam lima tahun terakhir, sektor Industri yang sebesar 12% dan sektor pengangkutan dan komunikasi sebesar 5% masing-masing memberikan kontribusi pertumbuhan ekonomi terbesar pada tahun 2005 masing-masing sebesar 1,41%, 1,31% dan 0,76%.

Pengangguran di Indonesia

Masalah pengangguran di Indonesia tak pelak merupakan suatu permasalahan yang disebabkan oleh ketidakmampuan ekonomi Indonesia dalam menyerap tenaga kerja. Pertumbuhan ekonomi belum mampu menjawab pelbagai permasalahan ketenagakerjaan sehingga penentuan arah kebijakan masih menjadi dilema yang mendasar. Pertumbuhan ekonomi dalam menyerap tenaga kerja menunjukkan tren penurunan. Pada tahun 1994, setiap satu persen pertumbuhan ekonomi mampu menyerap hingga 400 ribu tenaga kerja, namun pada tahun 2004, setiap satu persen pertumbuhan ekonomi hanya mampu menyerap tenaga kerja kurang dari 200 ribu jiwa. Bahkan untuk tahun 2006, setiap satu persen pertumbuhan ekonomi hanya menyerap tenaga kerja tidak lebih dari 50 ribu jiwa. Penurunan elastisitas penyerapan tenaga kerja dan peningkatan angkatan kerja baru telah mengakibatkan semakin meningkatnya pengangguran terbuka di Indonesia. Apabila dikaitkan dengan kondisi makro moneter Indonesia, peristiwa-peristiwa sebagaimana yang telah terurai sebelumnya berkaitan dengan perkembangan fundamental perekonomian Indonesia. Sejak terjadinya krisis ekonomi dan moneter pada Juli 1997, kondisi ekonomi Indonesia masih menyisakan bekas yang belum pulih sampai sekarang. Rawannya fundamental ekonomi Indonesia lebih dikarenakan oleh terjadinya ketidakseimbangan struktur pertumbuhan ekonomi yang lebih tergantung pada sektor konsumsi.

Catatan Akhir

Pertumbuhan ekonomi yang didominasi oleh konsumsi tentunya merupakan rintangan untuk mengentaskan kemiskinan. Kebijakan ekonomi makro tentunya harus diarahkan untuk meningkatkan kemampuan ekonomi dalam menciptakan lapangan kerja yang lebih luas dan mengurangi jumlah penduduk miskin dengan mendorong pertumbuhan dan stabilitas ekonomi serta meningkatkan kualitas institusi. Menganggur berarti tidak bekerja, tidak bekerja sama artinya dengan tidak berpendapatan, dan pendapatan yang nihil artinya miskin. Sebagai solusi, pemerintah harus memperluas cakupan ekspansi fiskal sehingga dapat menyentuh beberapa sektor perekonomian yang mampu menyerap tenaga kerja berlimpah namun memiliki tingkat kemiskinan yang sangat tinggi. Tentunya kita semua berharap agar pertumbuhan ekonomi dapat berjalan seirama dengan pemerataan sehingga pertumbuhan ekonomi benar-benar dirasakan manfaatnya oleh rakyat banyak.