Competency Test 1

1. The Economy of Indonesia in the Last Five Years

The economy of Indonesia in the last five years has been known to have high rate of external debt. This debt is increasing from year to year. As what was claimed by Sri Mulyani as an effort to encourage Indonesia economic in productivity and financial. It is reflected by positive growth in terms of national income. GDP grows around 5 percent annually. In contrast with it, the poverty headcount ratio decreases one until two percent. However, this kind of condition shouldn’t be a threathen for Indonesia, considering that the growth of debt is still not greater than the GDP growth, meaning that the debts actually haven’t yet filled up the goals of pushing economic outputs.

2. Indonesia’s Opportunity to become developed country in the 4th industry revolution era

To become a developed country, one country must has some characteristics including low-rate of poverty, high educational rate, high income per-capita, and etc. Indonesia itself has been becoming a developing country for years. It is unquestioned that with a lot of both natural and human resources Indonesia are expected to become developed country. Yet, by looking at the fact it is quite hard. The chance that our country has to become developed country is considered low. It happens because Indonesia’s exports are showing no improvement in developing the role of high technology-based exports. Even, the value of export’s contribution is also small.

3. How Politics affects economic outcomes

Politics is an activity in a country’s development system through the division of income in order to achieve the agreed goals. The politics is very substantial for the development of a country. Strictly speaking , the performance of political-economic system interacts with each other. In economic development, it is important to take political risks and their effects into the consideration of economic viability. It is worth to be considered because the changes in political policy in a country will have a major impact on the financial, business, and economic sectors. That is why if the political situation is good, the business will generally run smoothly and if the political situation is uncertain, the uncertainty in the business’ element will increase. For example, in terms of stock market, a conducive political situation will make the stock prices rise, and vice versa.

4. Special Region of Yogyakarta’s Province Budget

APBD (Regional Revenue and Expenditure Budget) in Special Region of Yogyakarta in 2018  is amounted to Rp 1.7 trillion. This ABPD funds increased from the previous year which amounted only Rp 1.6 trillion. The increase in APBD funds is made in order to fulfill the development priorities planned by local governments. In line with the increase of APBD, the privileged funds obtained also increased. It is increased by Rp 200 billion from 2017. In 2017, DIY privilege funds amounted to Rp 800 billion while in 2018 privileged funds became Rp 1 trillion.

5. Types of Exchange Rate System

  • Fixed Exchange Rate

Fixed Exchange Rate is exchange rate  in which the highest monetary authority of a country (Central Bank) sets the domestic exchange rate against another country set at a certain level regardless of supply and demand activities in the money market.

Example:

 

The government initially set the exchange rate (exchange rate) of the rupiah against the US dollar is US $ 1 = Rp 8.000, -. As US imports of goods increase, demand for the US dollar also rises, from Q0 to Q1 which eventually causes the demand curve to shift from D0 to D1. If the government does not intervene it will create a new exchange rate of E1. Therefore, for the exchange rate to remain at US $ 1 = Rp 8,000, – then the government (via the Central Bank) will sell US dollar reserves so that the US dollar supply curve will shift to the right of E1. and formed a rate of exchange equal to the original level of US $ 1 = Rp 8.000, -.

  • Flexible Exchange Rate

          Flexible exchange-rate system is a monetary system that allows the exchange rate to be determined  by supply and demand. Every currencyarea must decide what type of exchange ratearrangement to maintain. Between permanently fixed and completely flexible however, are heterogeneous approaches.

Example:

 

 

Initially, the exchange rate that occurs is at point E0 as the balance point. If imports of American goods increase, then demand for US dollars to pay for imports also increases, so the demand curve from D0 will shift to D1. This causes the balance of exchange to shift to E1. At point E1, the rupiah exchange rate is Rp 7,000, – per US dollar or US $ 1 = Rp 7,000, -. Thus, it is said that the value of the US dollar has increased (appreciation) against the rupiah, because before 1 US dollar is only worth Rp 6.000, – (point E0). In converse, if imports of American goods decline then demand for the US dollar also decreases which will eventually shift the demand curve from D0 to D2. As a result, the rate of exchange rate shifts to the point E2 is US $ 1 = Rp 5.000, -. This means the value of the US dollar has decreased (depreciation) against the rupiah. The thing to remember in the free exchange rate system is that regardless of the equilibrium price (either on E0, E1, or E2).

  • Free-Floating Exchange Rate

Free-floating exchange rate is a regime where the currency price is set by the forex market based on supply and demand compared with other currencies. This is in contrast to a fixed exchange rate, in which the government entirely or predominantly determines the rate.

Example:

 

The exchange rate was set originally at US $ 1 = Rp 8.000, -. Rates are allowed up or down with a 1% limit above or 1% below that level. That means, the rate may go up to US $ 1 = Rp 8,080, – {Rp 8.000, – + (1% x Rp 8.000, -)}, and the rate may fall to US $ 1 = Rp 7,920, – {Rp 8.000, – – (1% x Rp 8.000)}. If demand for US imports is so high that the demand for US dollar increases, and the exchange rate changes to US $ 1 = Rp 8,100, then the government will sell US dollar reserves to meet the excess demand, so the exchange rate returns in the range between Rp 7,920, – up to Rp 8,080, – per US dollar. Conversely, if the exchange rate drops to US $ 1 = Rp 7,900, – there will be an excess supply to the US dollar. And, the government will buy the excess bid to keep the exchange rate in the range of Rp 7,920, – up to Rp 8,080, – per US dollar.

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References:

http://aceh.tribunnews.com/2015/05/26/politik-dan-pengaruhnya-terhadap-perekonomian

http://kabar24.bisnis.com/read/20171113/78/708580/rapbd-diy-2018-alokasikan-dana-pendidikan-terbesar-mencapai-2434

https://news.detik.com/berita-jawa-tengah/d-3768510/dana-keistimewaan-diy-tahun-2018-meningkat-jadi-rp-1-t

https://en.wikipedia.org/wiki/Exchange-rate_flexibility

https://www.investopedia.com/terms/f/floatingexchangerate.asp

 

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