dari ‘the myth of free trade’  (chang), keadaan ekonomi indonesia skrg mungkin mirip Afrika selatan.



Upon taking power from the apartheid regime in 1994, the new ANC (African National Congress) government of South Africa declared tbat it would pursue an IMF-style -macroeconomic policy. Such a cautios approach was considered necessary if it was not to scare away investors given its leftwing, revolutionary history.


In order to maintain price stability, interest rates were kept high; at their peak in the late 1990s and the early 2000s, the real interest rates were 10—l2%. Thanks to such tight monetary policy, the country has been able to keep its inflation rate during this period at year.” But this was achieved at a huge cost to growth and jobs. 


Given that the average non-financial firm in South Africa has average profit of less than 6 %, real interest rates of 10—12% meant that few could borrow to invest. No wonder the investment rate (as a proportion of GDP) fell from the historical 20-25%  (it was once over 30% in the early 1980s) down to about 15%. Considering such low of investment, the South African economy has not done too badly. between 1994 and 2005, its per capita income grew at 1.8%. But that is only ‘considering ….’.


Unless South Africa is going to engage in a major programme of redistribution (which is neither politically feasible nor politically wise), the only way to reduce the huge gap in living standard between the racial groups in the country is to generate rapid growth and create more jobs, 

so that more people can join the economic mainstream and improve their living standards. Currently the country has an official unemployment rate of 26—8%, one of the highest in the world; a 1.8% annual growth rate is way to inadequate to bring about a serious reduction in unemployment and poverty, in the last few years the South African government has thankfully seen the folly of this i and has brought the interest rates down, but real interest rates, at 

around 8 %, are still too high for vigurous  investment.


In most countries, firms outside the financial sector make a 3-7% profits. Therefore, if real interest is above that level, it makes more sense for potential investors to put their money 

in the banks , or buy bonds, rather than invest it in a productive firm. 


Also taking into account all the trouble involved in managing productive enterprises — labour problems, problems with delivery of parts, trouble with payments by customers, etc. — the threshold rate may even be lower. Given that firms in developing countries have little capital accumulated internally, making borrowing more difficult means that firms cannot invest much.


This results in low investment, which , in turn, means low growth and scarce jobs. This is what has happened in Brazil, South Africa and numerous other developing countries lf they followed the Bad Samaritans’ advice and pursued a very low rate of inflation.


However, the reader would be surprised to learn that the rich Bad Samaritan countries, which are so keen to preach to developing countries the importance of high real interest rates as a key to monetary discipline, themselves have resorted to lax monetary policies when they have needed to generate income and jobs. At the height of their post-Second-World-War growth boom, real interest rates in the rich countries were all very low — or even negative. Between 1960 and ‘ 73 the latter half of the ‘Golden Age of Capitalism’ (1950—1973), when all of today’s rich nations achieved high investment and rapid growth, the average real interest rates were 2.6% in Germany, 1.8% in France, 1.5% in the USA,  1.4% in Sweden and – 1.0%



Monetary policy that is too tight lowers investment. Lower investment slows down growth and Job creation. This may not be a huge problem for rich countries with already high standards of living, generous welfare state provision and low poverty, but it is a disaster for developing countries that desperately need more income and jobs and often are trying to deal with a high degree of income inequality without resorting to a large-scale redistribution programme that, anyway. may create more problems than it solves.


Given the costs of pursuing a restrictive monetary policy, giving independence to the central bank with the sole aim of controlling inflation is the last thing a developing country should do, because it will institutionally entrench monetaris macroeconomic policy that’s particularly unsuitable for developing countries.


This is all the more so when there is actually no clear evidence that greater central bank independence even lowers the rate of inflation in developing countries , let alone helps to achieveother desirable aims, , likeh higher growth and lower enemployment.


It is a myth that central bankersare non-partisan technocrats. It’s well known that they tend to listen very closely to the view of the financial sector and implement policies that help it, if necessary the cost of the manufacturing industries or wage-earners. 


So, giving them independence allows them to pursue policies that benefit their own natural constituencies without appearing to do so. The policy bias would be even worse if we explicitly tell them that they shoul not worry about any policy objettives  other than inflation.



Moreover, central bank independence raises an important issue for democratic accountability . The flip side the argument that central hankers can take good decisions only because their jobs do not depend on making the electorate happy is that they can pursue policies that hurt the majority of people with impunity — especially if they are told not to worry about any thing other than the rate of inflation. 


Central bankers need to be supervised by elected polticians, so that they can be, even if at one remove, responsive to the popular will. This is exactly why the charter of the US Federal Reserve Board defines its first responsibility as ‘conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates and why the Fed chairman subject to regular grilling by Congress. Ironic, then, that the US government acts internationally as a Bad Samaritan and encourages developing countries to create an independent central banks solely focus on inflation.