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The Comparison Of Growth Domestic Product Economics Essay
国内产品增长程度的比较
在二战之后，荷兰殖民印度尼西亚整整三个半世界后，它终于变得独立了。快速的经济变化阶段，腐败，自然灾害和民族化进程已经使得印度尼西亚成为一个动荡的国家。其丰富的自然资源，是经济增长的支柱力量。然而，贫穷却是印度尼西亚发展经济的最大障碍。
印度尼西亚的经济发展主要以农业和石油业为基础。总人口中21470万人，即百分之90的人口从事于工业。在农业部门，印度尼西亚已能够在水稻上自给自足，且多年来，一直不需要进口这类主食。早些时候，石油和汽油过去是主要的外汇收入来源，但不断上升的国内消费成本和停滞不前的石油产量已经使得印度尼西亚，沦为一个石油净进口国家。
旅游业正在稳步增长，且成为国家主要的外汇来源。印度尼西亚拥有丰富的自然资源：林产品，橡胶，咖啡，茶，铜，棕榈产品及鱼，它们为出口收入做出重要贡献。最近一些年，我们已经采取许多步骤来改善促进非石油出口，包括工艺品，纺织品，贵金属，茶叶，烟草，水泥，化肥以及制成品。
Indonesia became independent after World War II, following Dutch colonialism for three and a half centuries. Periods of swift economic change, corruption, natural disasters and a democratization process have made Indonesia a turbulent nation. Its wealth of natural resources is a pillar of its economic strength. However, poverty is the biggest challenge to the Indonesia’s economy.
Economy of Indonesia is mainly based on agriculture and oil. Among the population of 214.7 million people, 90% of the population is engaged in agriculture. In the agricultural sector, Indonesia has become self-sufficient in rice and does not need to import this staple food as it had for years. Earlier, oil and gas used to be a major foreign exchange earner but rising domestic consumption and stagnant oil production has now made Indonesia, a net importer of oil.
Tourism is steadily gaining ground and is emerging as major foreign exchange earner for the country. Indonesia is rich in natural resources. Forestry products, rubber, coffee, tea, tin, nickel, copper, palm products & fish make important contributions to export earnings. In recent years a number of steps have been taken to promote and stimulate non-oil exports, which include handicrafts, textiles, precious metals, tea, tobacco, cement, fertilizers as well as manufactured goods.
Indonesia maintains a liberal foreign exchange system and has few restrictions on transfers abroad, and in general freely allows conversions to and from foreign currencies. The Rupiah-Indonesian Currency-is linked to a basket of currencies of Indonesia's major trading partners. The unitary exchange rate allows for fluctuation.
With the objective of a more equitable distribution of development gains, the government gives high priority to expansion in the less developed regions of the country and the creation of employment opportunities for the country's growing labour force. To attract foreign capital, certain incentives are provided and several sectors are open to foreign investment.
1.2 Economy Background of Papua New Guinea (PNG) Description: papua3.gif
Papua New Guinea is an island in Oceana which first explored by Spanish and Portuguese. Population of PNG becomes lesser due to the reason of earthquake-triggered tsunami on July 17, 1998. PNG’s economy collapse, crime rate had increase and corruption was rampant.
Based on the World Bank, 70% of the country lives in extreme poverty with about one third of the population living with less than US$1.25 per day. The causes of poverty were the population lived in traditional society and they also practice subsistence-based agriculture.
PNG is richly endowed with natural resources: Agriculture provides a livelihood for 85% of the population; Mineral deposits, including oil, copper, and gold, account for 72% of export earnings. The country also has a notable coffee industry and other crops include cocoa, oil palm and tea.
The PNG legislature has enacted various laws in which a type of tenure called "customary land title" is recognized, meaning that the traditional lands of the indigenous peoples have some legal basis to inalienable tenure. Only left some 3% of the land of PNG is in private hands. This is a matter of vital importance because a problem of economic development is identifying the membership of customary landowning groups and the owners.
PNG still ranks as the least friendly and most costly business environment in Melanesia and far behind other regional competitors. To ensure future growth leads to widespread wealth creation, it must make further progress in improving the conditions for new and existing business enterprises. Without correcting these distortions productivity growth is likely to remain sluggish and upcoming resource extractions have the potential to lead to the types of concentrated, poorly distributed economic growth of the past.
2.1 The Comparison of Growth Domestic Product (GDP) Between Indonesia and Papua New Guinea (PNG) and its Reason (Real Growth Rate)
Graph 2.1
The first comparison’s country is Indonesia. Indonesia's record of economic growth and diversification is among the most successful in the developing world; but with the onset of the Asian financial crisis in mid-1997, with Indonesia at the epicentre, and the political upheavals and unrest that followed, economic growth has been arrested. The 1998 political unrest and drought that contributed to a recession hit the country hard, severely depressing the economy and halting economic growth.
In 2000, however, the economy showed signs of being on the way to recovery with a stronger-than-expected real GDP growth rate of 4.8%, a budget deficit amounting to only 3.2% of GDP (below the government's target of 4.8%), and a surprisingly low inflation rate of 3.75%. On 4 February 2000, the government, now headed by Abdurrahman Wahid, signed for a second agreement under the Extended Fund Facility (EFF) of the IMF, in this case involving a $5 billion line of credit. In April 2000, a second agreement was reached with the Paris Club members for the rescheduling another $5.8 billion of principal owed on official debt. From 1989 to 1993 real GDP growth averaged 6.7%. Restrictive monetary policy and a conservative fiscal stance held inflation to below 10%. Amid efforts to keep the economy from overheating, real growth climbed to 7.3% and 7.5% in 1994 and 1995, respectively, before peaking in 1996 at 7.8%. Inflation was held to single digits, and the official unemployment rate was 3%, although underemployment was estimated at as high as 4%. In nominal terms, per capita income rose above $1000, and in purchasing parity power (PPP) terms, at least three times the nominal figure. Economic catastrophe struck in mid-1997, fuelled by a loss of investor confidence in the region, particularly in the weaker economies, as Hong Kong came under Chinese control in July.
The collapse of currencies began in July in Thailand but spread swiftly to Indonesia. Within a year 75% to 80% of all businesses in Indonesia were technically bankrupt as the rupiah went from about 2,600 to one US dollar in June 1997 to a low of 17,000 to one US dollar in June 1998. GDP growth, which had been 8% in the first quarter of 1997, and 7% in the second quarter, fell to 3% in the third quarter and 2% in the fourth. In November 1997 an international bail-out package was arranged that included a stand-by agreement with the IMF with an $11.5 billion line of credit, an $8 billion loan from the World Bank and the Asian Development Bank (ADB), $5 billion loan from its own reserves, and $3 billion in US loan guarantees. The extended impact of the crisis can be seen in the figures for 1998, when real GDP fell by over 13%, industrial production was down by 18.24%, and the net outflow of invested capital reached of about $13.8 billion.
In August 1998, a second agreement was concluded with the IMF, in this case for a $7.4 billion line of credit offered under the terms of its Extended Fund Facility (EFF). The next month, the government reached an agreement with the Paris Club for rescheduling $4.6 billion of principal owed on official (foreign aid) debts.
On the others hands, in January 1991, the government of PNG signed a peace treaty with the Bougainville rebels that established a South Bougainville Interim Authority, although fighting continued throughout the year.
Economic activity is concentrated in two sectors and misubsistence sector, which occupies more than two population, produces livestock, fruit, and vegetables for local consumption; agricultural products for export in palm oil, coffee, cocoa, and tea.
Economic growth, which averaged 3.7% in the late 1980s, rose to 9% in 1991, 11.8% in 1992, and 16.6 % in 1993. The growth was driven by a mineral and petroleum boom cantered in the Highlands region. Growth slowed to 3% in 1994, 2.9% in 1995, and 1.6% in 1996 and 1997 due to an anticipated drop in production from PNG’s aging mines and oil fields, and a 1997 drought that cut the coffee crop in half. However, the economy did not reach the expected4.5% increase in part because of the Asian financial crisis, and reducing drought.#p#分页标题#e#
In conclusion, the GDP growth rate of PNG in 1998 and 1999 is higher than the GDP growth rate of Indonesia. However, from year 1997, 2000 until 2006, the GDP growth rate of Indonesia is higher than the GDP growth rate of PNG. This is because the economy of Indonesia has been recovered from year 2000 until year 2006. While the economy of PNG did not reach the expected increase due to the reason of Asian financial crisis which had make a reducing drought.
2.2 The Comparison of Unemployment Rate between Indonesia and Papua New Guinea(PNG) and its Reason.
Year
Unemployment rate in Indonesia
Table 2.2 Unemployment rate of Indonesia and Papua New Guinea
Indonesia is one of the largest countries in the Asia (after China) with an approximately population of 238 million. Being a third world country with a GDP of 1.124 trillion USD, Indonesia faces a numbers of problems in their labor force sector, including high unemployment rate.
High unemployment in Indonesia is caused by the following reasons:
Nationwide low education level
High population density
Even though the overall literature level in Indonesia is fairly high at 88% of the total population, the majority of them ended their education grades after secondary school (grade 12). This causes the majority of the labor force lack the specific skills to perform professional jobs in large multi-nation corporations. As mentioned before, Indonesia’s population size is also a major reason after the high unemployment rate. Every year, the number of retiring work force is much lesser than the number if new work force employed in the nation.
Moreover, study recovered that a majority of Indonesian prefer to be involve in short term job rather than a long term job, as the latter is much more stressful and as not rewarding compared to the short term jobs available. Thus with the above factors, the current unemployment rate in Indonesia is 7.14%, which experts says that will remaining high for the next few years.
PNG is an island nation located at the eastern half of the island of New Guinea. PNG is a member of the Commonwealth Realm, with a population size of 6 million and a GDP of 16.8 billion USD. Most of the population of PNG lives in extreme poverty, with approximately one population out of three lives with USD$1.25 per day.
High unemployment rate is the major problem faced by the people of PNG, mainly caused by nationwide low education level. There is no free schooling provided in PNG, and most of the parents in the nation unable to afford the tuition fees of their children. At the same time, low infrastructure availability makes schooling a troublesome journey, as they need to walk for long distance to reach available school in the area. Minimal education does not prepare the nation for professional jobs, such as doctors and engineers. At the same time, the local teens are not interested in the agriculture sector, as the industry is unable to attain sufficient productivity to feed the workers. National disaster such as drought and pest infestation causes the agriculture sector to suffer and unable to provide sufficient income to feed the workers. In short, PNG is facing a problem with a vicious cycle which is not easy to be rectified.
2.3 The comparison of Inflation Rate (GDP Deflator) between Indonesia and Papua New Guinea (PNG) and its reason.
chart PNG
Diagram 2.3a Inflation Rate of Indonesia Diagram 2.3b Inflation Rate of PNG
Inflation is a rise in the general level of price of goods and services in an economy over a certain period of time. When the general price level rises, each unit of currency buy fewer goods and services. And this might also reflect an encroachment in the purchasing power of money. Inflation brings positive and negative effects to an economy. The negative effects include the decreasing in the real value of money and also the shortage of goods. These may cause the consumers begin to overstock as the price might be increase in the future.
However, there is also a point of positive effect. When the inflation happens, the government may encourage people to do investment in the non-monetary capital project-development.
Indonesia is the largest national economy in Southeast Asia. It has a market-based economy in which the government plays an important role by owning more than 160 state-owned enterprises. The government dominate the prices on several basic goods, including fuel, rice, and electricity. However, inflation happens and the level and volatility of Indonesia's inflation is getting higher after the global economic crisis period.
According to the graph given below, the inflation rate (GDP Deflator) increase from 5.49 to 14.33 on year 2003 to year 2005. The rate decreased to 11.26 on year 2007. When the time 2008, the inflation rate went to 18.15, where it might be the crisis happening. These is due to the inflation on fuel and transportation in Indonesia are higher than the national inflation and these cause the price increase in other goods, such as housing and food. Besides, in the region of Java, West Kalimantan and Central Kalimantan are known as the facts of the inflation which is likely to affect another regional inflation where we can categorize it as the "followers". As a summary, the inflation in Indonesia happens due to the rising of fuel and also the control of the government.
PNG is a developing economy located in the south-western Pacific. It is rich in natural resources like copper, gold, and oil, but the access is limited because of the difficult terrain, and the high cost of development. The main income of this country is the mineral deposits, including oil, copper, and gold which stand 72% of the export earnings. And with this, PNG is highly dependent on foreign aid. Besides, agriculture is a main source of living for 85% of the population. And this country also has an outstanding coffee industry and other crops include cocoa, oil palm and tea. But if there is an increasing in aggregate demand, it will associate with the increase in the economic growth. According to the governor of PNG, Loi Bakani, when we face the scarcity, where the limited resources cannot fulfil the unlimited wants and need, the government has to increase in tax revenue or higher the prices of fuel, oil, and imported foods in order cover the expenditure of the country. This is where the inflation appears.
In conclusion, economy in Indonesia is not as good as the government cannot control well, so that there is inflation for the past 8 years. However, PNG is a bit better as they can manage to have a lower inflation compare to Indonesia while the crisis started. And the PNG government does try all the ways to solve the inflation and made a deflation on year 2004 and 2009.
2.4 The Comparison between Economic Activities (by sectors) Between Indonesia and Papua New Guinea (PNG) and its Reasons.
In Indonesia, it has an economy based on three main sectors.
One of the sectors is mining industry. Indonesia has very rich natural resources, namely, oil, natural gas and metals. In term of money, natural gas extraction gives the most benefit to Indonesia among all other mining activities. In addition, Indonesia is recognised as one of the world’s largest suppliers of natural gas. Oil extraction in Indonesia carries the same importance as natural gas does. Indonesia also mines metal mineral in a wide range, including bauxite, silver, nickel, coal, tin, copper and gold to manufacture various types of goods and to be exported.
Secondly, the agriculture sector is the most employed industry in Indonesia. Most people in Indonesia rely on agriculture. There are large plantations, such as, rice, spices, rubber, coffee and much more to be sold to overseas. However, there are also farmers who produce just enough food to feed their own family or may have a little extra to sell in market. As information, the primary crop in this sector is rice and secondly is known as palawija, which include soybeans, corns, peanuts and so on.
Lastly is the manufacturing sector that process raw material into finished goods. Examples of manufactured goods include textiles, clothes, plywood, rubber sheet, cooking oil and many others. These productions in the industry are used to be sold locally and be exported. As information, textiles are the largest export from this sector.
The reason Indonesia put its focus on those respective sectors mentioned above is because those mined resources can be sold locally after processing and to overseas either before or after processing. Agricultural products can reduce the burden of government to supply as much food as possible to all its citizens as they have to import lots of food to reach sufficient food supply. Manufacturing sector provides various and large number of job opportunities to its people. By this most Indonesian workers are skilled hence attracting more international companies to invest or build factories in Indonesia to increase even more job opportunities and income. Manufactured goods are also being exported to many countries to get revenues as well.
In Papua New Guinea (PNG), the main economic sectors are agriculture, mining and manufacturing. Agricultural activities act as the dominant sector in PNG economy. These activities include timbering, as well as growing cocoa, coffee, rubber and palm oil, and raising poultry and fish. This country is active in growing coffee and palm oil in order to be exported. It is also active in tuna industry. However, most fishing activities in PNG are carried out by people from other nationalities with licenses. Similar to Indonesia, this is the most employed sector and most people in PNG rely on this sector.#p#分页标题#e#
Mining sector include extraction of oil and natural gas and metal resources gathering, namely, gold, silver, copper and more. These resources are used to manufacture goods or sold to overseas. However, although this country is highly covered with these minerals, the mining of these resources are limited because of the terrain which makes the process difficult. But, this industry still accounts a lot in the country’s GDP. As information, a new liquefied natural gas production facility which is estimated to be completed this year will has an estimation yield of 32,500 barrels of product per day.
Manufacturing sector in PNG is not as developed as the sectors mentioned above but it is still considered as one of the main economic sectors in this country and it has an improving trend. The main products include processed food and beverages and tobacco. However, the productions are for domestic consumption only and do not generate any export earnings.
The reason PNG focuses on agricultural sector is because raising poultry and fish provide food for the people though it might not be enough. Cocoa, coffee, rubber, timber and others can be exported to gain revenues. This sector provides a lot of job opportunities as well. For mining sector, the government revenues and foreign exchange earnings depends heavily on mineral and oil exports. This industry also plays an important role in development of PNG now as well as in the future as the government receives significant royalties, duties, dividends and taxation from gold industry revenue. Manufacturing sector also provides job opportunities for the people. As this sector is improving, the country might get lots of revenues from exporting manufactured good in the future.
2.5 The comparison of Import and Export activity between Indonesia and Papua New Guinea (PNG)
The term import is derived from the conceptual meaning as to bring in the goods and services into the port of a country. By the way, the term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country.
In Indonesia, they export oil and gas, electrical appliances and rubber. The main export partners are Japan (17.28%), Singapore (11.29%), US (10.81%), China (7.62%).
Indonesia exports oil and gas because the production and the prizes of these goods were high. This can increase national incomes. Electrical appliances are another important agricultural export crop of Indonesia. Indonesia's strengths are the production of electrical appliances. Appliances can fetch a good price and it will also improve the national income. Indonesia is rich in rubber because it has rubber plantations where the soil can make the rubber trees grow better. Rubber goods are needed to get a better profit.
Machinery and equipment, fuels and foods are also the main import goods of Indonesia because Indonesia is lack of resources to manufacturing the machinery and equipment. Although Indonesia have their own food, but it is not sufficient and complete. Therefore, Indonesia imported food such as wheat and soybeans to meet the national. Furthermore, Indonesia is a rubber plantation’s country. Unlike Malaysia which is rich in fuel, Indonesia has only a little fuel resources. So, Indonesia needed to import fuel from others country.
In Papua New Guinea, there are several import and export activities. The main export goods are oil palm, cocoa, and coffee. The main export partners are Australia (30.05%) and Japan (7.48%).
Arabica coffee is PNG's most important crop, both in terms of foreign exchange and its contribution to income and employment. Among smallholders there is a greater potential for increasing yields and raising farm incomes.
After coffee, cocoa is PNG's second most important agricultural export crop. Existing plantings are highly concentrated geographically in the islands region. But many other areas in the country are highly suitable for cocoa production.
Oil palm is now the third most important agricultural export and is growing rapidly. Oil palm offers a much higher income and a higher return to labor than any other major crop. Apart from the benefit enjoyed by the producers themselves, the NES have a market developmental impact in the regions in which they are located, partially because of the services and utilities that have been associated with them.
The main import goods of PNG are machinery and transport equipment, foods and fuels. The main import partners are Australia (43.27%), China (13.29%) and Singapore (9.59%). PNG import machinery and transport equipment because don’t have enough resources to manufacture by itself. PNG import foods also because the he food hey produce is still not sufficient for its entire people. PNG also import fuels because their lack of resources. It cannot take enough fuel to supply them.
The import goods of Indonesia and PNG are the same. Both of the countries are also import machinery and equipment, fuels and foods from Singapore and Japan. On the other hands, they have difference export goods. Indonesia export oil and gas, electrical appliances and rubber but PNG export palm oil, cocoa and coffee. They make good use of national resources to improve national economic capacity through export activities.
3.1 Describe the Current Economic Problem/Challenges Faced by the Chosen Countries and Recommend Ways to Overcome it.
On December 1997, Indonesia’s monthly inflation rates had remained below 2% all the way up through November 1997, and in December they barely edged over that number. While the interest rate had remained in check, compared to a level of around 9% per year before the crisis, the SBI rate doubled to around 18% per annum during the last half of 1997. All these things would get much worse during 1998. On December 1997 by the degree to which people were perplexed and disconcerted, all of a sudden the exchange rate shot up from around Rs 4000 to over Rs 5000, hitting Rs 5600 before easing off a bit. People were wondering if there was no limit to how high the price of the dollar would rise, or how low the stock market would plummet. Many were on the verge of panic. The main message was that there were ample precedents for all of this. Indonesia was suffering from a combined balance-of-payments and banking crisis.
The scenario for a balance-of-payments crisis went as follows. Big capital inflows typically bring an economic boom because they reflect a situation where total demand in the economy exceeds total production by the amount of the inflow. This created a situation where dollars were abundant and cheap while the market for non-tradable goods and services was booming and expensive. Then, the trade balance swings sharply from deficit to surplus.
In order to solve inflation in Indonesia, the government can regulate the transfer of foreign currency reserves and impose restrictions in the transfer of foreign currency reserves outside of the country. Depletion and reduction of the foreign currency reserves will be prevented. Governments can also lift certain import controls.
Besides, to solve a balance of payment problem is to go on borrowing more. But the foreigners will lose faith on the government. The second way to solve the problem is to ask for rescheduling the foreign loans. The foreigners might give some more time to repay past loans but will not give any fresh loans. So, the country is now deemed.
The economy of PAPUA NEW GUINEA (PNG) generally can be separated into subsistence and market sectors, although the distinction is blurred by smallholder cash cropping of coffee, cocoa, and copra. About 75% of the country's population relies primarily on the subsistence economy. The minerals, timber, and fish sectors are dominated by foreign investors. Manufacturing is limited, and the formal labour sector consequently also is limited.
By mid-1999, PNG's economy was in crisis. Although it’s agricultural sector had recovered from the 1997 drought and timber prices were rising as most Asian economies recovered from their 1998 slump, PNG's foreign currency earnings suffered from low world mineral and petroleum prices. Estimates of minerals in exploration expenditure in 1999 were one-third of what was spent in 1997. The resulting lower foreign exchange earnings, capital flight, and general government mismanagement resulted in a precipitous drop in the value of PNG currency, the kina, leading to a dangerous decrease in foreign currency reserves. The kina has floated since 1994. Economic activity decreased in most sectors; imports of all kinds shrunk; and inflation, which had been over 21% in 1998, slowed to an estimated annual rate of 8% in 1999.
Citing the previous government's failure to successfully negotiate acceptable commercial loans or bond sales to cover its budget deficit, the government formed by Sir Mekere Morauta in July 1999 successfully requested emergency assistance from the International Monetary Fund and the World Bank. With assistance from the Fund and the Bank, the government has made considerable progress toward macroeconomic stabilization and economic reform.
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