1 warwick j mckibbin anu centre for applied macroeconomic analysis (cama), rspas and lowy institute...
TRANSCRIPT
1
Warwick J McKibbin
ANU Centre for Applied Macroeconomic Analysis (CAMA), RSPAS
and Lowy Institute for International Policy
Indonesia in a Changing Global Environment
Presentation at the Indonesia Update September 24, 2004
2
Overview
• Short Term Global Economic Outlook– World growth– Oil prices– Global imbalances
• Longer Term Issues– Energy use– Carbon Emissions– Resource depletion (many issues)
• Forestry
• Conclusion - Linking the short term and long term
3
Short term outlook
• World economic growth is strong• Oil prices are high and possibly rising• Global imbalances are a serious risk
0
2
4
6
0
2
4
6
-10
-5
0
5
10
15
-10
-5
0
5
10
15
Real GDPYear-ended percentage change
* Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore,Taiwan and ThailandSources: ABS; CEIC; Thomson Financial
2004
Australia
%%
% %
US
Euro area
New Zealand
Japan
Asia*
2001199819951992
Asia - Industrial ProductionMarch quarter 1999 = 100, smoothed
70
100
130
160
190
70
100
130
160
190
* Seasonally adjusted by RBASource: CEIC
China*
Index
Thailand
Malaysia*
India*
Indonesia*
Index
Hong KongPhilippines*
Taiwan*
Singapore
200420022000 200420022000
Korea
6
Short term outlook
• World economic growth is strong• Oil prices are high and possibly rising• Global imbalances are a serious risk
Oil Prices1986(1)-2004(9)
0
10
20
30
40
50
60
1/2/
1986
1/2/
1987
1/2/
1988
1/2/
1989
1/2/
1990
1/2/
1991
1/2/
1992
1/2/
1993
1/2/
1994
1/2/
1995
1/2/
1996
1/2/
1997
1/2/
1998
1/2/
1999
1/2/
2000
1/2/
2001
1/2/
2002
1/2/
2003
1/2/
2004
$US
/bar
rel
Source: West Texas Intermediate Crude, Energy Information Agency, Daily
8
Impacts on the world economy of higher oil prices
• For every $US10 per barrel rise in oil prices, world economic growth falls by 0.6%– BUT very different effects across countries
(see www.economicscenarios.com)
• Significant potential to slow economic growth but unlikely to create a global recession
9
Impacts of higher oil prices on Indonesia
• Indonesia is a significant liquid energy producer – 1.4 million barrels/day out of world total of 76 million
barrels/day or 3.8% of OPEC in 2003
• Higher oil prices should be a bonanza through higher export revenue but domestic use is subsidized by the central government and so instead there are severe strains on the fiscal position
10
Short term outlook
• World economic growth is strong• Oil prices are high and possibly rising• Global imbalances are serious a risk
11
Global Imbalances
• Current accounts reflect gaps between savings and investment in different countries
Current Account Balances 1995 - 2004
-6
-4
-2
0
2
4
6
8
10
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
%G
DP
United States NICS Indonesia
13
2 main sources of the Transpacific Trade Imbalance
• Sharp rise in US fiscal deficits• Large fall in public and private investment in East Asia
Figure 2. Private and Public Saving, and Current Account: The U.S., 1981-2004
-10
-5
0
5
10
15
20
1981~88 1989~96 1997 1998 1999 2000 2001 2002 2003(est) 2004(p)
(%)
Private Public Current Account
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2 main sources of the Transpacific Trade Imbalance
• Sharp rise in US fiscal deficits• Large fall in public and private investment in East Asia
Investment
0
5
10
15
20
25
30
35
40
45
50
1995 1996 1997 1998 1999 2000 2001 2002 2003
%G
DP
Malaysia Indonesia Thailand Korea
17
The adjustment to the global shift in savings and investment imbalances has been postponed through massive accumulation of foreign reserves in Asia
Table 5. International Reserves of East Asia, 1999~2003
(Millions of US$)
1999 2000 2001 2002 2003
Japan 287,019 354,927 395,240 461,349 663,303
Subtotal 287,019 354,927 395,240 461,349 663,303
Hong Kong 96,270 107,549 111,179 111,935 118,362
Korea, South 74,014 96,137 102,775 121,388 155,287
Singapore 76,871 80,138 75,391 82,050 95,748
Taiwan 106,238 106,749 122,237 161,714 206,636
Subtotal 353,393 390,573 411,582 477,087 576,033
Indonesia 26,454 28,504 27,252 30,980 34,963
Malaysia 30,599 29,525 30,481 34,234 44,516 Philippines 13,234 13,053 13,445 13,149 13,463
Thailand 34,075 32,018 32,362 38,060 41,078
China 157,784 168,289 215,651 291,230 408,151
Subtotal 262,146 271,389 319,191 407,653 542,171
Total 902,558 1,016,889 1,126,013 1,346,089 1,781,507
Source: IMF, International Financial Statistics
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What are the relative contributions of Asian Investment decline and US Fiscal Policy?
From Lee, McKibbin and Park (2004)
“Transpacific Imbalances: Causes and Cures”
Source: G-Cubed Asia Pacific Model version 58n
Source: G-Cubed Asia Pacific Model version 58n
22
Longer term Resource Issues
23
Energy Use
0
1
2
3
4
1980 1985 1990 1995 2000
Total Energy Consumption
Energy Consumption per Capita
Energy Consumption per GDP (1993 Rupiah)
Energy Consumption, Relative Trends, Indonesia
Source: Energy Information Administration, World Development Indicators
0.0
0.5
1.0
1.5
2.0
2.5
1980 1985 1990 1995 2000
Gas
Coal
Petroleum
Net Hydroelectric Power
Net Geothermal, Solar, Wind, andWood and Waste Electric Power
Indonesian Energy Consumption by SourceQuadrillion Btu
Source: Energy Information Administration
0.0
0.2
0.4
0.6
0.8
1.0
1980 1985 1990 1995 2000
Gas Coal
Petroleum Net Hydroelectric Power
Other
Indonesian Energy Consumption by SourceShare of Total Energy Consumption
Source: Energy Information Administration
0
20
40
60
80
1980 1985 1990 1995 2000
Indonesian Fuel Exports as a Percent of Total Exports
%
Source: World Resources Institute
28
Carbon Emissions and global climate change policy
1% of global total in 1998
Ratified UNFCCC
Signed but not ratified Kyoto Protocol
0
1
2
3
4
1980 1985 1990 1995 2000
Total CO2 Emissions
CO2 Emissions Per Capita
CO2 Emissions Per GDP (1993 Rupiah)
CO2 Emissions, Relative Trends, IndonesiaIndex 1980 = 1
Source: Energy Information Administration, World Development Indicators
0
20
40
60
80
100
1980 1985 1990 1995 2000
Consumption and Flaring of Natural Gas
Consumption of Petroleum
Consumption of Coal
Total
Indonesian Carbon Dioxide Emissions from the Consumption and Flaring of Fossil Fuels by Source
Millions of Metric Tons of Carbon
Source: Energy Information Administration
31
Forestry
Percentage Change in Forest Area by Type, Indonesia, 1990-2000
-20% 0% 20% 40% 60% 80%
Plantation
Natural Forest
Total Forest
Percentage Change 1990-2000
World
Asia (excluding Middle East)
Indonesia
Source: World Resources Institute
33
Global Climate Policy
• Global community is formulating actions to reduce carbon emissions– Kyoto Protocol 1997 set binding targets and timetables for
Industrial countries • A damaging approach for a country like Indonesia
– Developing country participation mainly through the Clean Development Mechanism but this is unlikely to generate much abatement activity
• Global action against climate change (such as the Kyoto Protocol) will impact on Indonesia in the short run– Indonesia exports fossil fuel energy– Indonesia will have to limit domestic emissions eventually
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Indonesia needs to adopt a strategy that makes economic development and good environmental outcomes compatible.
• Well defined property rights over resources and the environment are critical
• Can link the issue of greenhouse gas emissions and management of forestry, other resources and land use through a domestic market based mechanism such as the McKibbin-Wilcoxen Blueprint for climate policy
• It is in Indonesia’s interest to promote (and implement) better approaches to climate policy than the flawed Kyoto Protocol
35
Conclusion
• Indonesia faces a complex global environment with risks from higher oil prices and potential adjustment to global macroeconomic imbalances
• Issues such as land use, forestry, and carbon emissions have local as well as global implications that will eventually require local responses
• Need to tackle these issues in the short run– remove energy subsidies – create a clear system of property rights that give incentives for
future investments in energy infrastructure, forestry and land use management
36
Background Papers
www.sensiblepolicy.com
www.notwrong.com