Inter CAFE

International Centre for Applied Finance and Economics

“Empirical Analysis on Persistence Unemployment and it Solutions based on Micro Data”, Collaboration between Inter CAFE LPPM IPB and Central Bank of Indonesia (BI)

There are three objectives of this study:

(1) to examine the existence of unemployment persistent in Indonesia,

(2) to examine the determinants of unemployment persistent in Indonesia and in several sample regions,

(3) to formulate the strategy tackle high unemployment rate in Indonesia.
To answer the research objective, this study applied some empirical analyses i.e. descriptive statistics, unemployment accounting and econometric modelling. This study used secondary data (national and regional level) and primary data, which has been collected through own surveys (interviews) with companies, employees, unemployed, labour union and decision maker.
The study concluded that there has been a unemployment persistent in Indonesia, which is categorized as “disequilibrium persistent unemployment without self correcting mechanism”. This means that such persistence occurs outside labor market equilibrium and does not have an automatic mechanism towards its equilibrium. The persistence is mainly caused by the slow rate in capital accumulation, wage rigidity, longer period in jobs seeking, and several institutional rigidities in labour market.
This study formulates the following suggestions:

(1) the need for increasing the quality of economic growth through hands on strategy;

(2) the regulations in banking sector and capital market should stimulate capital accumulation;

(3) to increase total factor productivity,

(4) special incentives to labour-driven sectors;

(5) conducting regionally-specific anti-unemployment policies.

“Regional Bond and Its Implication on Regional Economy and Regional Institution”, Joint research Bank of Indonesia (BI) and Inter-CAFE IPB, 2005. Member of researcher.

Under the implementation of fiscal decentralization, local governments have wider roles and responsibilities to determine their regional development. It is aimed that local governments will effectively contribute in the provision of public services, creating jobs which aim to increase public welfare.
This study aims to evaluate the impacts of fiscal decentralization on regional finance as well as regional economic performance. In addition, in term of decentralization, this study analyzes several opportunities and obstacles due to issuance regional bond.
Combining national secondary data and case studies in twelve cities in six representative provinces (Riau, South Sumatera, Banten, East Kalimantan, North Sulawesi, and NTB, the important findings of this study are as follows. First, in general, after fiscal decentralization, regional economy did not grow significantly. Second, the main source of regional budget (42-93 percents) are from balancing budget (dana perimbangan) from the Central Government. Third, the structure of expenditure were mainly for financing current expenditure (40-85 percent from total expenditure). In general, there were only small amount of regional expenditure are to finance capital expenditure that are very important to stimulate economic development and human resources development in the future. Fourth, based on stakeholders’ assessment (through conducting in-depth interviews), there have no significant impact of fiscal decentralization to contribute in regional economic performance as well as increasing people’s welfare. Fifth,
The study suggests some important recommendations. First, regional development planning should be consistent with long term strategic planning. Second, increasing efficiency of regional budget; clear definition of the role of central-regional government in the context of fiscal decentralization. Third, regional bond does not necessarily important to be issued. In this regards, increasing regional income (PAD) would be more beneficial to reduce regional dependency on fiscal allocated from the central government.

“Banking Intermediation: Problems and Solutions”, Inter-CAFÉ LPPM IPB and Center for Study and Central Banking Research, Bank of Indonesia. 2007.

Intermediation is one of important issues in the role of banking sector to contribute in the economic development process. In fact however Indonesia banking intermediation were relatively low. In this regard, the objectives of this study are follows. First, identifying the existence of banking disintermediation in Indonesia. Second, identifying the problem of disintermediation, what is the determinants of problem of lack of lending (credit slowdown) in Indonesia Third, formulating solution that can be implemented by monetary authority (Bank of Indonesia) to enhance banking intermediation.
The study found that credit slowdown is caused by slowdown from demand side, particularly it caused by decreasing consumer spending and increasing operational cost due to high inflation and weakness business environment. Moreover, from banking side, there are some difficulties in overcoming the weakness of demand from credit due to some problems such as the high rate of non-performing loan (NPL) and the difficulties in changing their assets portfolio to other sectors. As an implication, its excess liquidity was invested in Bank Indonesia Certificates (SBI).

“Paradox of Economic Growth and Unemployment : Existence, Implication, and Solution”, Inter-CAFE IPB and Bank of Indonesia (BI), 2005.

There was a unique phenomenon that against the rule, , the unemployment rate also increased.. This is as we call it paradox  of growth and unemployment. It is then important to identify how its paradox is business cycle phenomena that will self-corrected in the short-run or it was caused by fundamental problems that happens in the long-run and needs policy mix.

Year Growth rate Unemployment rate
2002 3,7 % 9,1 %
2003 4,1 % 10,1 %
2004 5,1 % 10,3 %
2005 5,6% 10,8%
2006 6,1% 10,4%

Generally, the purpose in this research are;

(1) description growth and unemployment paradox which was happened in Indonesia from 1969 until now

(2) analyzing the determinant factors from the paradox

(3) exploring the impacts which is caused by every factor to main macroeconomic variable, and

(4) formulating implication policy from result analysis.
Result of this research implied that the main problem held in manufacture sector. Consequently, as a solution and policy recommendation, it seems that problem in manufacture sector should been overcome. For example, by regulating employment and wage policy, and regulating in reducing overhead cost. Academically, this research suggested to conduct a further study growth and unemployment paradox in micro level analyses by using field survey regarding the evidence of Natural Rate of Unemployment (NAIRU).