Democracy or Money-tocracy?

The Jakarta Post (original link)

Berly Martawardaya , Jakarta | Thu, 02/19/2009 2:13 PM | Opinion

There has been controversy recently over the Tax Directorate's request that those who contribute money to a political party posses a tax registration number (NPWP). The move is on the right track but misses the big picture. Its not just about registering additional taxpayers or getting more tax money, it's about the urgency of preventing a rise of a money-tocracy.

Campaign contributions are a delicate interaction between democracy and capitalism. In democracy, every citizen is equal and each eligible voter has only one vote. In capitalism, on the other hand, one dollar equals one vote and so the owner of the greatest share, even if its only one person, can determine the path of a company.

All would be fine if democracy was practiced only in politics and capitalism applied only in business.

But politics and political parties need money to organize, conduct activities and advertise to garner votes. If they are banned from collecting money then the political system as a whole would be weakened. But if no regulations are in place then democracy will turn into money-tocracy, and the side with the most money will win.

The classical, rational-choice theories of voter participation posit that individuals weigh the be-nefits of voting against the costs. The benefits of voting consist of the satisfaction of the act itself and the expected change in the outcome of the election that results from one vote.

The costs of voting include the time and effort required to actually cast a ballot - registering to vote, becoming informed about the position of candidates, finding the appropriate polling place, and queuing to vote, for example.

But more recent and realistic theories posit that elections are like a business. The investors and campaign contributors reap most of the benefits in the form of favorable policies once their candidates is elected and the workers, the regular voters, simply conduct their civil responsibilities.

In the U.S., one person can legally contribute no more than US$2,300 (Rp 25 million) to a political candidate and $28,500 (Rp 350 million) to a national party in one election cycle.

Corporations and labor organizations may not make contributions or expenditures in connection with federal elections, but they are allowed to establish political action committees (PAC) that can contribute to a candidate or national political party, but with a limit of $5000 (Rp 60 million) for individuals and $28,500 for parties.

In the United States, The McCain-Feingold Law was enacted to strengthen the role of small donors and dilute the influence of rich individuals. People are not permitted to be much more equal than other in terms of political influence just because of their wealth.

But what about Indonesia?

Indonesia's next election is expected to see the participation of more than 171 million registered voters and 34 political parties. Election law no 10/2008 stipulates that one person can give up to Rp 1 billion ($77,000) in campaign contributions - individual candidates and political parties are not separated. Furthermore, corporations and business entities are allowed to make campaign contributions of up to Rp 5 billion.

How can it be that with an income per capita almost one tenth that of America, Indonesians are allowed to give twice as much money per person and more than ten time as much per corporation? Are Indonesians one hundred times more honest and pure than Americans?

The Obama campaign got almost half of its staggering campaign funds from small donors. Instead of coddling big money interests, Indonesian politicians need to be directed to approach the people that they asking to vote for them for money.

Lowering the limit of campaign contributions and increasing transparency is a very important step to strengthening ownership of democracy and reducing cynicism toward politics. We should also require individual candidates to report the sources of their campaign funds and upload contributor lists to the Internet.

The Indonesian election is coming soon, may democracy win.

Where have all the businessmen gone?

Jakarta Post (original link)

Berly Martawardaya , Jakarta | Tue, 02/10/2009 2:40 PM | Opinion

Why is there so much fuss about, mostly, small companies in the midst of the global financial crisis? Shouldn't we focus on rescuing big companies that employ a large number of people?

A national economy is like a human body; to remain healthy it needs to get rid of old and dying cells and replace them with a new and vigorous business entity. In the best cases, life support would be better than revitalization. In the worst cases, aging cells could turn into a cancer that would weaken and suck energy from the whole body.

In the globalized world, capital can be obtained from banks or investors; production can be outsourced to China; administration can be done in India. But the largest part of the profit goes to the brand owner who focuses on product development and marketing.

Compare top American companies from the last decade to today; Google, Starbucks were not even on the list last decade, while the financial behemoths such as Bear Sterns, Lehman Brothers and Merrill Lynch no longer exist as independent entities today.

Do the same for Indonesia and, except for few who went bankrupt during the Asian crisis, the list today is almost identical to the last decade, with family-base conglomerates, albeit more streamlined, remaining on top of the game.

A global entrepreneurship study by Klapper and Delgado from the World Bank for the period 2003-5 covered 83 countries and concluded that Indonesia is in the group with the lowest entry rate for new industrial companies.

Eurobaromater, a major public opinion survey in the EU's 25 member countries, found in 2007 that 45 percent of Europeans would like to become their own boss. The figure is even higher for young people (15 - 24 years old). The corresponding numbers in the US are 61 percent and 42 percent.

Some would blame Indonesia's feudalistic culture and history, which indeed may play some role, but other changeable and impermanent factors are likely to be in play.

What if someone told you that to start a business it takes two and half months and a total cost of nine months of the average Indonesian's income?

The rational choice is to only start a business when you are sure that you will get a sustained high return, unless you have a way to get around the lengthy and costly procedures.

Thus, the entrepreneur option in Indonesia is heavily skewed toward the rich and highly connected. A deeper look at the National Labor Force Survey (Sakernas) revealed that on average, only an entrepreneur with tertiary education earned a more than average income.

Indonesia is ranked 129th among 181 countries surveyed on the aforementioned survey, on the ease of doing business. The government needs to reduce red tape and complicated bureaucracy.

Ha Joon Chang, the Korean-born economist from Cambridge pointed out in The East Asian Development Experience (2006) that the key to East Asia's achievement is selective government intervention and domestic protection to prepare local companies to compete globally. Large countries should not coddle its major industries with firewalls of protection, since doing so only leads to those companies growing lazy and focusing on milking the domestic market.

We need to look to neighboring Malaysia, where it takes only 13 days to start a business costing less than two months of a Malaysian's average income. They have even had a cabinet level ministry for entrepreneurs since 2004.

Indonesia is behind Malaysia because of using a small country strategy in a large country setting. We need a comprehensive package of financial support, skills training and export assistance for would-be entrepreneurs.

Let's do things right this time and let (at least) a thousand entrepreneurs bloom.

MUI ‘fatwa’ has not smoked out the myths

Jakarta Post (original link)
Berly Martawardaya , Jakarta | Fri, 01/30/2009 2:07 PM | Opinion

Walter Lippman in his seminal book, Public Opinion points out the manufacture of consent and its significance to the practice of democracy, because it allows control over public opinion regarding the world and over the public’s interests in that world.

In a religious country like Indonesia, religious authorities still hold sway over public opinion. While far from being the sole manufacturer of consent, the Indonesian Ulema Council (MUI) still holds some sway over the Muslim population and its past record shows positive results, such as the success of a family planning program.

In a special meeting of the MUI in Padangpanjang, West Sumatra, a fatwa (edict) on smoking for pregnant women and children was issued. It is also haram for Muslim men to smoke in public places and smoking in general is considered makruh (blameworthy).

There are some myths, disguised as arguments, put forward against the issuance of a general fatwa on smoking.

Myth 1: Tobacco helps the poor.

The first argument to be employed is usually how the tobacco industry reduces unemployment by absorbing the poor into the tobacco factories and plantations.

Currently, only about 2 percent of Indonesian farmers plant tobacco. There are heavy concentrations of tobacco plantations in certain areas, about 90 percent of them in East Java, Central Java and West Nusa Tenggara. The total area is less than 2 percent of Indonesia’s arable land.

Research by the Demographic Institute (FEUI) show that those farmers earn only about half the minimum wage and that most of them are eager to switch to food crops such as rice or corn.

Tobacco farming is a seasonal job and does not provide full-time work. While the total number of people involved in tobacco farming in Indonesia is estimated at about 1.5 million, the equivalent full-time workers are less than 500,000.

What about workers in the tobacco factories? Most of the 400,000 workers are women with low education and studies show that the majority would gladly move to another sector if the opportunity arises and adequate training to do so is available. The compensation principle could be used by allocating funds from tobacco tax to provide training for tobacco factory workers to switch to other professions.

But the poor also consume tobacco. More than 40 percent of poor households in Indonesia routinely buy tobacco, averaging Rp 113,089 per month in 2005 or the equivalent of 12.43 percent of the total expenditure. It is a higher proportion than expenses for protein, health and education. Equal to more than 20 kilograms of rice or 10 kilograms of eggs per month, a much-needed boost for health and nutrients for the whole family instead of the temporary satisfaction for, as is usually the case, the father.

Seto Mulyadi, chairman of the Indonesian Child Protection Committee, has asked the public to protect children from tobacco smoke.

Myth 2: The tobacco industry helps the country

This year, about 5 percent of the government’s domestic income is projected to come from tobacco tax and levies.

After the increase of tobacco tax, the government is targeting Rp 48 trillion in 2009; 10 percent more than this year of Rp 44 trillion. The policy shows that the government understands the principles of tobacco consumption.

As an addictive substance, it has the characteristics of being inelastic to income. A 1 percent increase in price will cut less than 1 percent in consumption. One of the proven laws of economics is how inelastic goods will get higher revenue, including in tax, if the price increases.

A simulation by the FEUI shows that a tariff increase to the maximum rate of 57 percent from sale price (according to Law No 39/2007) will increase government revenue to Rp 50.1 trillion instead of decreasing it.

Indonesia tobacco tax has an average of 37 percent, way below our neighboring countries in ASEAN. A pack of cigarettes in Singapore cost almost five-fold that in Indonesia.

Myth 3: It is a personal choice.

The last bastion of defense for tobacco consumption is the liberty argument. If people choose to smoke than that is their preference and should not be stopped in any way.

But freedom and the capacity to decide must go hand in hand.

About 70 percent of Indonesian smokers start smoking before they are 19 years old. Very few children and teenagers have the capacity to evaluate the health risks of smoking and the highly addictive nature of nicotine.

Cigarette firms spend Rp 2 trillion in advertising, which makes up some 6 percent of total advertising dollars spent. All major tobacco companies in Indonesia sponsor sporting events, youth events, and music concerts. The result is that Indonesian youth are strongly influenced by advertising that associates smoking with success and happiness.

Gary S. Becker, a Nobel Prize winner in economics, and Kevin M. Murphy (1988) published a seminal paper titled A Theory of Rational Addiction. Substance addicts, including tobacco, choose their poison despite knowing that it is habit-forming and dangerous, and they do so because they expect the highs to outweigh the lows. Numerous studies by behavioral economists show that people with low self-control tend to make mistaken estimates on how bad the negative impacts are and how hard it is to quit.

Self-control is also related to education and income. Almost three-quarters of Indonesian males who did not finish elementary school smoke; while men in the lowest income quintile smoke more than those in higher income brackets.

Even if one has the right to poison oneself, there is no such right to distribute the poison – environmental tobacco smoke (ETS) – to other unwilling parties, also known as passive smokers.

The Islamic world seems to agree. Yusuf Qordhawi’s ban on smoking citing the dangers to people’s health should be prioritized over getting income. Ulema councils from Saudi Arabia, Iran and Malaysia have issued the fatwa. Of course, none of them have a tobacco industry.

The fatwa has not gone far enough where public health is concerned, but it helps to see the problem more clearly than behind the usual smoke of myths.

Should Indonesia Be Keynesian Now?

Jakarta Globe, December 17, 2008

Berly Martawardaya

In 1936, Keynes wrote, “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slave of some defunct economist.” As we speak now, no deceased economist is more influential than Keynes himself.

Greg Mankiw, a former economic adviser to George W. Bush, said that “if you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes.” Paul Krugman, a recent Nobel Prize winner in economics, proclaimed that now is a Keynes moment. Joseph Stiglitz, another Nobel Prize winner, goes further, claiming a moment of triumph for Keynesian tradition.

Keynes earned his popular acclaim the hard way: by being right on a very difficult and important question. Most classical economists before Keynes believed in Say’s Law, that supply creates its own demand. Slump in demand without external cause such as war or natural disaster is impossible. Keynes’s theory explains why depression is possible and, more importantly, how to get out from it.

Keynes connected the downward spiral of economic downturn to insufficient aggregate demand. Facing lower sales, business and producers cut back production despite available capacity, thus closing some factories and laying off workers along the way. The unemployed and those fearing to be unemployed reduce their purchases for higher liquidity preferences, the desire of individuals to hold liquid monetary assets, which leads banks to offer higher interest to get deposits. Banks hold their purse tight and freeze loans in fear of failed repayments. The vicious cycle continues.

Keynes further argued that not only are markets not self-correcting, but in a severe downturn, monetary policy was likely to be ineffective and the economy is in a liquidity trap. Fiscal policy must come to the rescue and not worry about budget deficits.

Couldn’t Indonesia’s government spend its way out of an economic downturn? October exports showed an 11.6 percent decrease from September. Reductions in oil prices played a significant role, but non-oil and gas exports such as rubber, wood products and textiles fell between 22 percent and 32 percent.

Foreign investment is likely to drop due to capital outflow to the United States and Europe to recapitalize the over-leveraged and subprime-exposed banks. In East Asia, Toyota and Sony are already feeling the impact of penny-pinching consumers.

There are some silver linings. Indonesia’s economy still grew at 6.1 percent on the third quarter. After bottoming in June, the consumer confidence index is rising and the October numbers reached their highest since July. More important, inflation receded in November at 0.12 percent, down from more than threefold in October.

While central bankers around the world cut interest rates, Bank Indonesia only recently cut its lending rate by 25 basis points. BI had raised its key interest rate six times this year, from 8.0 percent to 9.5 percent. BI also announced support for export credits and adjusted the overnight deposit rate to 50 basis points from 100 basis points below the benchmark BI rate. The Jakarta Interbank Offers Rate reaches 15 percent while the corresponding number for London and Singapore is below 3 percent. It’s hard not to argue for an even lower BI rate and creative liquidity measures.

The age of the central banker is supposed to pass — an era in which former Fed chairman Alan Greenspan, Duisenberg from the European Central Bank and Hayami from Bank of Japan are sages that could move markets and jolt economies with a single word. Bank Indonesia is not that mighty, but BI Governor Boediono can prove that Indonesia still not all-Keynesian yet.

The writer is an economics lecturer at the University of Indonesia and maintains a blog at kafedepok.blogspot.com.

US-led Global Capitalism Has a Foot in the Grave

The Jakarta Globe, December 5th 2008

Berly Martawardaya

Global capitalism as we know it is a dead corpse. Omnipotent deities of Wall Street have turned into sinful mortals that hardly deserve their multimillion-dollar bonuses. Bear Sterns, Lehman Brothers and Merrill Lynch used to be the gold standard of professional finance and investment, now they are confined in the dust bin of history, with the once mighty Citigroup likely to follow.

The big three US car manufacturers used to be the largest producers in the world. But the chief executives of General Motors, Ford Motor and Chrysler recently landed in Washington, still too proud to hitchhike someone else’s private jet, hat in hand with a tin can, begging for money from US Congress.

The real estate bust is forcing massive debt write-offs, in turn leaving banks wary of lending. Companies facing reduced liquidity must quickly slash their cost structures, with cutting employees and investment the easiest path. Homeowners who once felt wealthy with inflated price tags attached to their houses are now pinching pennies and thrift is the new slogan. But if everyone is saving, who will spend?

How about a $700 billion bailout in the United States and a 400 billion British pound bailout in the United Kingdom? Done that. The G-8, G-20, ASEM and APEC? More acronyms and well-crafted statements of world leaders have been rolled out.

Government holds the checkbook, yet private companies and capitalism are still the key to wealth creation

So, who will replace the United States? Even before the crisis, it was projected that China would surpass the United States to become the world’s largest economy by 2025 and that Brazil would overtake Japan by 2050 to move into fourth place. Then there’s the European Economic Community, Asean plus 3 and the African Union to further dilute US influence.

The expanding number of competitors has been coined by PricewaterhouseCoopers as the Emerging Seven, or E-7, to replace the G-7 as the global economic powerhouse by 2050. E-7 economies — China, India, Brazil, Russia, Indonesia, Mexico and Turkey — will outstrip the current G-7 — the United States, Japan, Germany, UK, France, Italy and Canada — by between 25 percent and 75 percent.

But in this globalized world, can we really say that this is the United States’ problem? Weak economies in the United States and Europe will drag down consumption; luxury goods will nosedive first, but other goods will likely follow and reduce our exports. The fight for capital will induce higher interest rates in developing countries, just when we need accommodative monetary policy to jump-start demand. It is imperative developing countries coordinate to avoid the race to the bottom.

Churchill once said that capitalism is the worst system there is, except for all the others. In other instances in the last century, capitalism seemed to be on the brink of collapse. The Great Depression underlined the indispensable role of government during economic downturn. The end of World War II saw the rise of social security in the form of health and unemployment insurance. Stagflation in the ’7s highlighted the importance of energy costs and inflation. Capitalism has shown its ability to adjust itself. Now it has a new set of challenges. The world needs more of a balance of power and less unilateralism.

At upcoming World Trade Organization meetings, developed countries should follow through on their promise to cut agriculture subsidies. Cutting subsidies would create more opportunities for developing countries to supply to the developed world and earn much-needed income.

The world can’t afford to recede into a cocoon of protectionism, even in its regional form. A sudden and strict self-sufficiency policy would cause a loss in productivity. The government holds the checkbook, yet private companies and capitalism are still the key to wealth creation.

While the United States will be less dominant with the rise of China, India and new players, it will remain the most powerful country, at least for a while. It’s up to the new US administration to determine whether it’s worthy of retaining its status.

The writer is a lecturer in economics at the University of Indonesia and writes a regular blog for Kafe Depok.

The World Is Indonesia Now

The Jakarta Globe, November 22, 2008

Berly Martawardaya

Paul Krugman, a New York Times op-ed columnist and economics professor who has done seminal work on international trade and financial crises, suggested the title of this article in his blog shortly after he was announced as the winner of the 2008 Nobel Prize for Economics. The line is an echo of a famous editorial by Le Monde, a major French newspaper, one day after the Al Qaeda attack on the World Trade Center: “We are all American now.” Now the world financial system is under attack and a come-together moment exists again. Let’s put this chance to good use and share our experiences with the world.

Transparency and regulation matter. Indonesia’s banking sector in the late ’90s was littered with private banks breaking legal lending limits and public banks acting like bottomless pockets for politically favored entities. Wall Street has its own set of bad practices. Former Fed chief Alan Greenspan admitted to mistakes during his tenure, when in his overzealous belief in market righteousness, he rejected disclosure and regulatory frameworks for exotic financial instruments.

The result has been a disaster. When people are not sure of the value of what banks own, which banks have it and how much they paid for it, panic selling or bank runs can ensue.

The currency speculator vultures are watching government policy closely after massive capital outflow from foreign investors. Having little more than $50 billion in reserve is not an impenetrable wall for the rupiah when any sign of weakness could be used to start a currency attack. Recent uncertainty about Indover and Bakrie stocks was not an image that projected consistency and objectivity. And what about our end-of-year payment-in-dollar obligations?

Diversify, diversify. Exports are likely to drop by 10 percent to 30 percent, especially in the United States and Europe. To escape the worst secondary impact, Indonesia needs to drive domestic consumption, attract foreign investment or look for other export markets. The momentum is ripe to get rid of corruption and improve Indonesia’s investment climate.

Treat the stock market like a lady. Currently, the lady is fearful and frightened. She needs repeated assurance, commitment and support to get her back on her feet. But this time there will not be an IMF knight in shining armor to save the day, albeit temporarily. Unlike the banking and financial sector in the United States, the counterpart in Indonesia has very little direct exposure to subprime mortgages. Just make sure the government is not throwing too much expensive jewelry at the lady to calm her.

No Indonesian Bank Restructuring Agency, please. Henry Paulson, the US Treasury secretary, was apparently closely studying the agency, with many of its former leaders under criminal investigation. In his original three-page proposal, he demanded immunity from review “by any court of law or any administrative agency” on how he would spend a $700 billion bailout. Wisely, the US Congress rejected his demand. The more accountable option for the United States, and for us, would be a British-style injection of government capital for stock ownership instead of (bad) debt ownership, and let the banks settle themselves.

Keynes yes, IMF no. Very few self-respecting economists, and none who practice in developed countries, would insist on cutting government social expenditure. Instead of a burden, this is a tool to increase the circulation of money and a worthy investment in future human capital. The Keynesian remedy of escaping a liquidity trap through government deficit financing is more relevant than ever these days.

Not often does Indonesia have important lessons to teach the rest of the world. Let’s hope global policy makers are paying attention and are learning from us, as Paul Krugman has suggested.

Berly Martawardaya is a lecturer in economics at the University of Indonesia and writes a regular blog for Kafe Depok.

Global economic crisis: Time to get radical?

The Jakarta Post (Original link)

Berly Martawardaya , Jakarta | Tue, 11/11/2008 10:57 AM | Opinion

Once upon a time there was a country, confident, with steady economic growth and political stability. That country was ready to play a larger role in the region and the world. But, while the fundamentals of the country were indeed strong, problems in other countries spread to the region and caused investors to flee.

The stock market index rapidly went south and the exchange rate dropped. Fears of recession and a creeping sense of fallibility emerged. The country's leadership watched helplessly as their hard work crumbled before their eyes. Then they decided to do something radical which just might turn things around.

This description, is it about Indonesia's current trouble? Nope. The country was Malaysia in 1997 and the radical path, then rejected by the International Monetary Fund and most economists, was capital control.

Why was it considered radical?

Policy makers wanted to do three things: stabilize exchange rates, use their monetary policy to achieve domestic goals and maintain a regime of free international capital mobility, as described by Maurice Obstfeld, Jay C. Shambaugh, and Alan M. Taylor in 2004. But academics regard attaining all three at the same time, coined a trilemma, as impossible and self-contradictory. At most policy makers thought they could manage to pursue two out of the three objectives. After the collapse of the Bretton Woods agreement, most countries agreed to pursue only the first and third objectives.

Some European countries went even further and established the euro as a common currency, creating a supranational monetary authority which left no wiggle room. Those countries could no longer independently adjust their monetary policy to suit their domestic economic goals. If European countries, with all their economic might and long history of monetary policies, are still prone to crisis, then it should not be surprising if other regions also score lower on the stability meter.

The Asian economic crisis in the late 1990s put into question the virtue of free international capital mobility (Paul Krugman 1999, Joseph E. Stiglitz 2002), and cast doubts on the link between financial openness and buffering potential crises (Sebastian Edwards 2005). The impact of a sudden cessation of capital inflows coupled with massive capital outflows on a country's output and exchange rate could be devastating, especially after a period of regular capital inflows.

The chronicles of economic crises usually follow a similar path. An economy which has been receiving a large amount of investment and capital inflows for a considerable period and expects to do so going forward abruptly faces loan repayments under newly adverse conditions, which leads to defaults, or near defaults, on its loans. Factor in a large drop in the exchange rate (as in many of Latin American crises) and you get a downward spiral that can rapidly spread, a timeworn recipe for crisis. (Barry Eichengreen and Charles Wyplosz in 1996 demonstrated how a currency crisis in an industrialized country can spread to others.)

But the IMF and its collection of recipes in the Washington Consensus enshrined free international capital mobility on a pedestal. Thou must not experiment with capital control!

But, as with all economic policy, capital mobility is a means as an end. With the exchange rate breaking a psychological threshold, very close to touching Rp 12,000 per US$1.00 as I write, standard economic policy calls for raising the interest rate. But the Indonesian economy is slowing down and expected to head into a recession. Should we exchange short-term stability for long-term growth?

Crisis is the worst of times and the best of times.

The downturn brings many unexpected troubles but also opens door for unconventional solutions. France's President Nicholas Sarkozy has been talking about a new financial order the West sidestepped during last decade's Asian crisis. Other quasiradical ideas now floating around are global lender of last resort, global currency and foreign exchange trade suspension.

Asian nations have committed to pooling US$80 billion in emergency funds for crisis management at a recently concluded Asia-Europe meeting. The gathering provide convenient cover since most of the capital will actually come from Japan, China and South Korea with their red-hot export engines and stacks of foreign currency.

It's time to build a global war chest to fend off speculative attacks without overburdening conditions and lengthy procedures the IMF used to invoke. A global lender of last resort would function like a central bank on a larger scale; in the event of a liquidity crunch it could lend freely, temporarily and with penalty rates. Near-instantaneous decisions are needed to calm markets and the current IMF arrangement does not allow for that.

Building upon the regionalization trend, especially in Europe, and taking it to the next level would inevitably lead to the need for a global currency. While the road is long and arduous to get there, the benefit is too great to ignore. Policy makers will no longer have to deal with currency speculators and uncertainty. Nevertheless, considering the diverse structural differences between countries, an intermediate step of regional currencies among similar economies would be a wise path to take.

The last measure is the application of trading suspensions to global currency markets to put the brakes on speculation which provokes excessive downward (or upward) currency valuations. Trading suspension is a widely accepted instrument in developed stock markets.

In the United States, for example, trading suspension was codified more than 70 years ago as Section 12(k) of the Securities Exchange Act of 1934. In the event of emergency, defined as sudden and excessive fluctuations of securities prices generally, or substantial threat against fair and orderly markets, the Securities and Exchange Commission is authorized to suspend trading in any security for a period not to exceed 10 business days.

If proven effective in preventing widespread panic, why don't we apply this wise practice to global foreign exchange markets?

Considering the depth of the problem and numerous pronouncements by prominent economists that we are facing the worst economic downturn since the Great Depression. Maybe now is indeed the time to get radical.

The writer is a Ph.D. candidate in economics at the University of Sienna, Italy, and a lecturer in the graduate public policy program at the Faculty of Economics, University of Indonesia. He can be reached at b.martawardaya@ui.edu