Indonesia's Trade and Price Interventions: Pro-Java and Pro-Urban
Title:
Indonesia's Trade and Price Interventions: Pro-Java and Pro-Urban
Author:
Garcia, Jorge Garcia
Appeared in:
Bulletin of Indonesian economic studies
Paging:
Volume 36 (2000) nr. 3 pages 93-112
Year:
2000-12
Contents:
In 1987 and 1995 Indonesia's price and trade policies (intervention regime) increased the income of Java's urban centres and reduced that of people living in rural Java and the other islands. This happened because the regime protected manufacturing activities, most of them located in Jakarta, Bandung and Surabaya, and taxed primary sector based activities, located outside urban Java. It protected some primary sector based activities directly, but the entire intervention regime, with manufacturing protection included, taxed them. As a result, regions deriving income from primary sector based activities lost. Indonesia's intervention regime is regressive: it transfers income from poorer to richer regions. This regime and its effects on regional incomes continue. Governments have designed programs to raise the income of Eastern Indonesia, but have omitted the most effective instrument: opening the economy to international competition. A serious attempt to reduce regional income disparities should begin by eliminating barriers to international trade.
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