Using data from the 2003 BPS SAM, households are broken into 8 types, differentiated
by income level and source. The composition of income and expenditure differs
according to group. Thus, a fall in the price of, say, rice has offsetting effects on the
poorest group (agricultural labourers). On one hand their cost of living falls (rice is a
comparatively large share of their living costs); on the other hand, agricultural incomes
fall, especially in rice-producing regions. The net effect is computed by the model.
Municipal top-down extension
Results for West Java are further broken down into 25 municipalities or districts.6 There
is only a little supporting data7, so a simplified, “top-down” approach is used, which
divides sectors into two groups:
(a) For most primary and manufacturing sectors we assume that output changes by the
same percentage in each district. Nevertheless, district GDPs vary because expanding
sectors are over-represented in some districts.
(b) For the other, mostly service, industries, we assume that output follows district
demand. District household demand is in turn linked to district labour income. This
gives rise to a fairly strong “local multiplier effect”, which amplifies district GDP
differences due to (a).
The scenario: declining proven oil reserves and rising global energy prices
Indonesia’s proven oil reserves have declined by around 20 percent since the turn of the
millennium. At the same time, there has been a sharp increase in oil prices. In 2003, oil
prices were around $US30 per barrel and had risen to around $US55 per barrel in 2005.
Though analysts may dispute how much more oil prices might rise, there is little dispute
that rising energy demands in China and India - and an inability of many Western nations
to reduce national oil consumption - are likely to underpin high oil prices for some time
to come.
As has been the case in Australia, this is likely to provide mixed news for Indonesia.
Consumers will continue to feel the pinch of rising oil prices. As a major oil producer,
Indonesia may benefit from high prices, despite declining reserves.
Our application consists of two groups of shocks:
• Rising trade prices for key commodities; and
• Possible depletion of Indonesia’s crude oil supplies8.
The shocks given to import and export prices were as follows: crude oil (100%), natural
gas(100%), basic chemicals (10%), fertilizer (18.5%), paints (14%), petroleum products
(34%) and LNG (34%). The reason for the shocks to basic chemicals, fertilizer and paints
reflects their reliance on fuel inputs. As energy prices rise, the global price of such
commodities will also rise with the costs of production.
6 A top-down extension for Australia versions of the model were developed subsequent to the Indonesian
project, providing details at the statistical local area (SLA) level.
7 BPS provided value-added by 9 broad sectors for each district.
8 These simulations were undertaken using GEMPACK software. See Pearson (1988). Other applications
using the TERM approach include Horridge et al. (2005), Wittwer (2003) and Wittwer et al. (2005).
11