Category Archives: Business and economics

Is development alone the answer for Asia’s poor?

It’s often argued that development is the panacea for poverty in Asia. Rapidly growing emerging markets like Indonesia have adopted this as a mantra, putting development ahead of things like human rights, justice and enduring democratic reform.

Here’s what Professor Hal Hill, Professor of Southeast Asian Economies at Australian National University, said on the subject during a lecture in Canberra:

On the question of these trade liberalisations and poverty, I would draw the following link. We know in general that more open economies tend to do better than closed economies and generally that leads to higher growth. The question is: Does the growth translate into reduced poverty.

Most poverty reductions tend to be highly associated with growth – faster growth, higher incomes, higher incomes lower poverty. So it is growth plus – the key thing being what is in the plus. What it denotes is the capacity of the poor to connect to a faster-growing economy and typically the poor have only their labour to sell, and to the extent that the growth creates employment opportunities it is most likely to lead to a reduction in poverty.

However, it has to combine with education and health and other public goods which enable people to participate in the growth process.

So the evidence is pretty clear that higher growth leads to faster poverty reduction, but not necessarily at the same pace. You get cases like China where you get rapid growth and rapid poverty reduction but also a rapid rise in inequality.

He could have cited Indonesia as another case in point. Journalists often mention Facebook usage to illustrate Indonesia’s growing wealth and burgeoning middle class. The number is indeed impressive – Indonesians clearly love wasting time on Facebook. But the bigger picture lies in the internet penetration figures. At around 16 percent of the country’s 240 million people, it’s a lot closer to Pakistan on 11 percent than to neighbouring Malaysia at 64 percent. In other words, the vast majority of Indonesians have little or no access to the internet and probably don’t even know what Facebook is. The wealth associated with having an internet connection and a laptop or a smartphone is not reaching more than a tiny minority of the people.

Indonesia’s economy may be growing at 6% but the courts remain riddled with corruption, the hospitals are so bad people who can afford it (the five-percenters) fly to Singapore for treatment, and the education system is, to put it mildly, a joke.

Tobacco ad of the day: smoking as slimmer!

You'll be even slimmer when you're dead

This one goes out to all those women in developing countries who think smoking is a status symbol. Smoking won’t empower you; it will just make you stink and look stupid.

(For more old tobacco ads like this see the Stanford Medical School)

Who will verify Indonesian forest carbon?

The Australian government is spending 40 million dollars to boost Indonesia’s ability to take part in schemes to reduce carbon emissions through deforestation and degradation (REDD). That’s tiny by Norway’s one-billion-dollar standards, and even tinier when you consider how much money Australian-based mining firms make every year from exporting fossil fuels like coal.

That mining industry and Australia’s need to “offset” its massive carbon emissions without actually cutting them explain its enthusiasm for REDD pilot schemes in Indonesia, according to environmentalists.

Australia’s support includes a project to develop Indonesia’s National Carbon Accounting System and Forest Resource Information System, which the Australian government says will “enable Indonesia to measure, report and verify emissions reductions from practical REDD activities”.

Forest rangers in Aceh

This is laudable if it’s sincere and it actually works, of course. Everyone wants REDD to succeed as it could be, if done right, one of the easiest and fastest ways of slowing man-made climate change.

But a cynic could be excused for doubting the sincerity of Australia’s intentions and, by extension, the likelihood that Indonesian REDD projects will make the slightest difference to the climate. This is because Australia will use Indonesian forest offsets to avoid bursting the economic bubble of its China-fuelled mining boom. It has a massive commercial interest in making sure REDD produces “measurable” results in Indonesia in terms of emissions reductions, whether they actually do in reality or not.

This is how it was explained earlier this month by Guy Pearse, a former mining industry lobbyist turned author and green campaigner, in an address to the University of Queensland:

The CPRS [Australia’s proposed national carbon reduction scheme] really only worked if emission cuts could be outsourced en masse to developing countries who are willing to sign up to forest protection deals on the cheap. Federally, the [conservative opposition] wants to rely less on hiding carbon in foreign forests and a lot more on hiding carbon in agricultural soils in our backyard. But the bipartisan intent is much the same — closet the addiction to fossil fuels, especially coal.

The CPRS was abandoned by the Labor Government under Kevin Rudd, but Pearse predicts the new Labor Prime Minister Julia Gillard will try to revive some kind of carbon reduction plan if only to greenwash Australia’s climate irresponsibility:

Naturally the federal government wants the appearance of action, perhaps with a new trading scheme or a carbon tax, but expect the same sorts of outsourcing loopholes that allow Australia to use foreign forests and farm paddocks to mask its growing greenhouse pollution.

The United States, meanwhile, has announced a 40-million-dollar aid package to help Indonesia preserve its forests and adapt to climate change – a pretty big job for the funds available. In a press release earlier this week, the US embassy said the four-year project was “expected to result in a 50-percent reduction in the rate of forest degradation and loss from conversion, illegal extraction, over-harvesting and climate change for six million hectares.”

That’s a hell of a big area, considering Australia is spending around 30 million dollars on a 120,000 ha REDD pilot scheme in Kalimantan.

The US press release continued:

It will improve management of 3.5 million hectares of selected tropical forest to deter illegal logging. Changes in land use practices and improved forestry management will result in a 50 percent reduction in greenhouse gas emissions in the targeted areas.

I’m not an expert but it strikes me as odd that while Australia is spending 10 million dollars partly to help Indonesia measure carbon reductions from reduced deforestation, the United States already seems to have that problem solved. So much so that it can confidently predict, without offering a shed of evidence in its press statement, that its work will cut emissions by 50 percent in “targeted areas”. 

Let’s not even ask about the possible explosion in emissions from non-targeted areas – who will measure those?

(Photo from the UK Department of International Development via flickr)

Did Bakrie use his rat cunning with Rothschild?

Indonesian business tycoon and political heavyweight Aburizal Bakrie admires rats. He urges his executives to emulate the vermin. He blogs about how his father taught him to follow the sneaky, secret ways of the rat, and attributes much of his political and business success to rat “tactics”.

I wonder if Nathaniel Rothschild and shareholders in his investment company Vallar were aware of this when they agreed to jump into bed with Bakrie under a three-billion-dollar deal announced this month.

The tie-up between Vallar and Bakrie’s Bumi Resources, a coal producer, amounts to a reverse takeover. Vallar will be rolled over into a new entity called Bumi Plc, with Bakrie’s family business empire controlling 43 percent of the new share capital, Vallar 32.1 percent and the third party in the deal, Indonesia’s Roeslani family, taking 24.9 percent.

Bakrie’s brother, Indra, will become chairman of the London-listed Bumi Plc, and the chief executive and finance director of Bumi Resources will simply slot into the same jobs at the new company. The contract makes it crystal clear that Bumi Resources, the centrepiece of the deal, will remain under Bakrie family control.

Rothschild has said the deal is good for Vallar shareholders because it gives them a slice of a new coal “champion”, well placed on the London exchange to raise fresh capital to take advantage of the massive forecast growth in demand from India and China.

Indonesia is already the world’s biggest producer of thermal coal, and Bumi is the country’s unrivalled leader in the industry. So on that level, analysts say, the deal makes sense.

But closer examination of Bakrie’s record – and his reverence for the rat – may give Vallar stakeholders pause. The The Financial Times said as much this week, in an article asking whether Rothschild really knows who he is dealing with.

So let’s look at those comments Bakrie made about rats in a speech to members of his Golkar party in July:

We are hardworking politicians and we play with certain tactics. Golkar has to have the principles of a rat. Be like the rat who bites someone’s leg, without letting the person know that he has been bitten by us. A rat always bites with certain tactics, and technique. The rat bites a little, and carefully, and then waits. After he feels it is enough, then he goes back to biting just a bit again. The person who is bit [sic] never feels it. In politics, when we attack, we must not be careless and in a hurry, or our opponents will know and attack us back.

A lot of people were appalled by these comments, of course, so Bakrie issued a clarification on his blog a few days later:

I’ll explain what I mean by ‘playing tactically.’ To make it easier to understand, I use the analogy of a mouse. Because the animal’s survival depends in my opinion on its tactical nature. Its the analogy that my dad taught while he was still alive, to explain the importance of the tactical attitude in doing business… He said that if he slept in a bale bale (outdoor platform), by the morning his socks were already perforated, and his thumb had been bitten by rats but he hadn’t felt anything. Why is that so? Because the mouse sniffs before he bites, then bites only a little. Sniffs again, bites a little more and so on. If he just bit into it, he’d be dead immediately. I think the Golkar party should be like this too.

(He adds that although rats are universally known as symbols of corruption, that’s not the image he intended to pass on to his party.)

I wasn’t talking about the greedy nature of the rat, but its tactical nature… When attacking each other in local elections or politics, we should do it politely so the attack is not painful and doesn’t cause dissension.

So that’s fine then, right?

Maybe, if a few rather eccentric words of wisdom about rats were the only things to contemplate. But they’re not. Bakrie’s companies have been linked to a number of major scandals involving hundreds of millions of dollars in allegedly unpaid tax, suspected judicial corruption likened to a “court mafia”, and an environmental disaster that has drowned a huge swath of east Java under a lake of toxic mud.

Lots of fingers are pointing at Bakrie, but he denies everything. None of the most serious allegations has ever been proven in Indonesia’s courts.

The Financial Times notes that doing business in Indonesia carries “enormous risk”:

The country ranks 110th in Transparency International’s index of corruption perceptions, just above Ethiopia. The Asian Corporate Governance Association’s latest report says its securities laws fail to prevent either insider trading or market manipulation, while prosecutions usually fail. It adds, witheringly: “The attorney general’s office is considered to be one of the most corrupt institutions in Indonesia, while judges can almost always be had for a price.”

Mr Rothschild seems to have done this deal in a few weeks, which does not allow much time for due diligence. But he must surely be aware that three Bakrie group companies were recently fined Rp500m ($55,000) by the Indonesia Stock Exchange for filing financial statements that mis-stated their cash reserves. And that, in a separate case, a tax official is on trial for allegedly accepting $3m in bribes from subsidiaries of Bumi Resources – a claim the company denies. More prosaically, the Bakrie empire has nearly collapsed twice in the past 12 years, after the 1997/98 Asian financial crisis and again in 2008.

 After both near collapses it was rescued in circumstances that still raise questions about conflicts of interest and Bakrie’s political clout, questions the man himself dismisses with unaffected insouciance.

This week a tiny crack appeared in his confident persona, related to allegations of Bumi tax cheating and rumours, swiftly denied by Golkar, of a secret meeting between Bakrie and a corrupt tax official who had bribed his way out of jail to watch a tennis match in Bali. Bakrie, the former coordinating minister for people’s welfare, threatened to file a police complaint against media outlets that had been too “stubborn” in their reporting of the alleged meeting, which he denies.

Last week Bakrie was in Singapore, where he made a speech in which he praised former Singaporean prime minister Lee Kwan Yew as a “great leader”. Lee is notorious for silencing critics with defamation lawsuits.

Bakrie also told his audience that to attract the foreign capital required to build up Indonesia’s creaking infrastructure, the “biggest issue is legal certainty and the ability of the government to implement the law”.

With the jewel in his business empire’s crown soon to be listed on the London stock exchange, Bakrie will no doubt welcome the additional scrutiny his affairs are sure to attract.

As for Vallar shareholders, they may ask themselves who will bail Bakrie out the next time his empire teeters on the edge of collapse.

Indonesia cashes in on smokers…

… but its latest increase in excise duties on cigarettes will do almost nothing to deter people from lighting up.

According to Reuters, the government has raised excise tax for tobacco products by an average 6.2 percent for next year. Even so, cigarettes will still cost about one dollar per packet, among the cheapest in the world.

The government’s excise move is described as “part of its efforts to boost tax revenues and limit tobacco consumption in Southeast Asia’s largest economy”.

But the size of the increase appears carefully calibrated to add millions of dollars to the notoriously corrupt country’s coffers while keeping the price of cigarettes down.

Unless I’m mistaken, Reuters got its currency conversions wrong when it said the tax “will range from between 65 rupiah ($0.729) and 325 rupiah per stick of cigarette depending on type”.

Sixty five rupiah is actually $0.007, or 0.7 cents. Even if you only earn a couple of dollars a day – as millions of Indonesian smokers do – that sort of price rise isn’t going to stop you from feeding your addiction.

Feeding your children will just get that little bit harder.

This tax play perfectly illustrates the Indonesian government’s cynical and morally repugnant attitude to smoking. It is a cash grab that ensures demand for cigarettes will remain undiminished in a country that has made itself a playground for the tobacco industry. 

Reuters reports that the government “aims to collect 62.8 trillion rupiah [seven billion dollars] in excise tax next year, a six percent increase from 59.3 trillion rupiah set for this year”.

The money is clearly more important to the government than the health of Indonesians.

Tobacco ad of the day: the kids are not alright

This one goes out to all the bands that are playing at the Java Rockin’Land festival from Friday to Sunday in Jakarta, Indonesia. They’re all a bunch of monkeys doing tricks for the man from the tobacco company for scraps of pretty green. Totally uncool.

This American tobacco ad from the 1950s is targeting teenagers. These days it would be illegal, because of what we now know about the connection between tobacco marketing, addiction, disease and death.

But Indonesia might as well be back in the 1950s. In fact, it is subject to a bigger and bolder tobacco company campaign to create teenage cigarette addicts, and the bands playing this weekend are complicit up to their greedy necks.

A special mention must go to Chris Carrabba of Dashboard Confessional, who a little more than two months ago played a benefit show before an audience of cancer survivors to raise money for cancer care. I guess Big Tobacco just made him an offer he couldn’t refuse.

Special mention should also go to the promoters, who argue that they are not forcing teenagers to light up. Smoking is a choice, they say. Yes it is, an extremely bad choice which responsible adults should not be promoting as cool or glamorous or masculine or rebellious or anything else but stupid and dangerous.

The bands who are playing this gig are puppets, nothing more. If they ever claimed to have any artistic integrity they are sell-outs of the lowest kind.

And the officials who allow Big Tobacco to run riot in Indonesia are even worse.

This is what Surin Pitsuwan, the secretary-general of the Jakarta-based Association of Southeast Asian Nations  (ASEAN), said this week at a conference on smoking in Asia:

I think the people must be informed that their health is being compromised by some of these public officials who are puppets of a campaign of persuasion. And the irony is these people know better, they don’t smoke, the entire family doesn’t smoke. They become the tools and the partners of strategies almost willingly and that is something that has to be corrected, but it is an uphill struggle.

Tools, puppets, monkeys … whichever way you cut it this song remains the same.

Here is a list of the Big Tobacco stooges who are scheduled to play at the pro-smoking Java Rockin’Land: ARKARNA, DASHBOARD CONFESSIONAL, DATAROCK, DI-RECT, GALAXY 7, LIVING THINGS, MUTEMATH, NOT CALLED JINX, SOCIAL CODE, STEREOPHONICS, STEVE FISTER, Stryper, THE SMASHING PUMPKINS, THE VINES, WOLFMOTHER (plus a host of local acts).

(For more old tobacco ads check out the Stanford School of Medicine)

No cred for Chris Carrabba

Here’s a little clip of Dashboard Confessional’s frontman, Chris Carrabba, playing a charity show in July to raise money for cancer patients around the world. His performance wouldn’t merit any attention at all, if it wasn’t for the fact that he’s playing at a pro-smoking (tobacco sponsored) gig in Indonesia this weekend.

Check out the reference in his preamble to “experiences of cancer in my family”, and his praise for the “indomitable spirit” of the cancer survivors he is playing for.

Ready to puke yet?