Emergency ICOR That Mister President Must Beat!

Oleh  :   Djoko Edhi S Abdurrahman (Indonesian Tax Watch and Deputy Secretary of the Central Leader of the Legal Aid Institute for Nahdlatul Ulama, PBNU).

I was shocked to read the words of Director of PDBI Christianto Wibisono yesterday which called our ICOR number 6.0 which should be 2.0. This is an emergency number. Throughout the Soeharto regime, the highest ICOR figure was 3.0 due to corruption, rent-seeking economy and oligopoly.

In the Jokowi regime it rose to 6.0, or 60% of development leaks. This means that corruption and rent have doubled compared to the New Order. KPK, where is the KPK. Get up!

No wonder President Jokowi made wax statues at the Hong Kong Tolouse. The statues at Tolouse are statues of world leaders who have extraordinary debuts. What is Jokowi’s debut?

It turned out that there were two: (i) making IDR 4,000 trillion debt in two years in power, and (ii) creating ICOR figures up to 6.0. Incredible debut! Emergency development aliases, due to corruption, economic rent, and oligopoly.

I was amazed. Presumably because of the economic world I was replaced with the world of law. Hearing ICOR = 6.0 I opened my writing 13 years ago. Maybe you can help understand what an ICOR is. For Your Excellency Jokowi. I mean, don’t read Sincan’s comics, the pic is meme all over Sosmed.

With the ICOR 6.0 number, bulshit and hoax are multiplier effects that are heralded by the government, including projects from OBOR China and Meikarta James Riyadi, which amount to Rp. 743 trillion.

We only get production costs, the rest becomes capital flight back to China. We are getting poorer, the Taipan is getting richer. Unfortunately Christianto Wibisono did not elaborate on the number 6.0 ICOR of President Jokowi. This ICOR number should be beat first than HTI, Mister President!

Jokowi’s mandate on television must be fast. Quick opo? Don’t talk quickly Mister Jokowi, your ICOR 6.0. Don’t talk prosperous anymore, your ICOR is 6.0 Mister President. In ICOR 6.0 position, all bulshits, lie. Because, the ICOR cannot lie. You are a lie.

ICOR and PAN faction

This is my 2004 analysis of ICOR. It is enough that the Harrord – Domar version of the Incremental Capital Output Ratio (ICOR), to sharpen the concept of industrial economics, was put forward by Hakam Naja – for faction jargon!

Good if you can. In addition to the ICOR paradigm used to develop Propenas, Rapetada and APBN, used internationally (IMF, World Bank, UNDP), ICOR’s ability as a powerful control instrument for economic development targets, from design, process, output to post-realization analysis. [2]

The ICOR substance is the ratio of development inefficiency. Domar himself did not use the term Capital Output Ratio (COR), but Capital Coefficient in the letter k.

Only when Harrord and Domar joined the Harrord-Domar model, the term Capital Coefficient was changed to Capital Output Ratio (COR).

COR refers to efficiency parameters, while Incremental (increase), ICOR parameters are inefficiencies.

Let’s see the version of Propenas. The ICOR projects 4.4 inefficiency of development in 2000. This means that planners project economic or economic distortion of 44 percent of the total investment capital of development in 2000.

Compared to before krismon (1997) it was 1.4, but the government believed that figure would drop to 2.0 by the end of 2004. [3]

On the contrary, because the ICOR number has dropped to 2.0, the national economic productivity level (TFP – total factor productivity) automatically rises 1.6 percent per year.

I do not know yet, what number of ICOR projections were we able to achieve, and how much is the ability to change the economic structure to achieve it.

Until September 2004, both Bappenas, the Coordinating Minister for Economic Affairs and BPS had not announced anything, including Megawati who had to take an ICOR course. [4]

What is the relationship between ICOR and the national industrial design that the PAN Faction wants to fight for?

Assignment from the Chairman of the Drafting Team for the Ethics Faction of the PAN PAN Faction, in conjunction with Mr. Jaco as the Coordinator of the Pokja Ekuin (11 / Sep / 04), I was in charge of handling the industrial thematic – usually not separating the E-Ku-In terminology (economy – finance – industry) it’s because it is obligatory holistic.

After all, it can be tried to separate the industrial economy from the economy (macro) and finance (micro) or the real sector with the monetary sector as long as it does not deny the growth rate – savings – capital output ratio (COR) which affects the industry, especially the aspect of multiplier effect of capital investment on understanding growth development economy ala Domar. [5]

The incremental technique attached to COR, one of the best algebraic treatises on development economic arguments is based on the constant return to scale in Harrod-Domar’s growth theorem which focuses on the aggregation of the process of stable equilibrium growth between savings – investment – income.

But on the contrary the number of workers in the secondary and tertiary sectors rose in absolute terms. The important thing from the industrial sector is the influence of the industrial production function on growth compared to the primary sector which is 1: 3. So, absorbing every single workforce is equivalent to three workers in the primary sector. Another indicator, is the development of foreign trade and payment patterns that tend to refer to the structural changes, reflecting the process of diversification of production in the international market.

The actual record of GRDP data, that is Indonesia’s current condition (2004), is exactly the same as before the Domino Effect (May 1997). Thus, in traditional economic cycles, the period 2005 – 2009 was a booming period that allowed the national industry to emerge as a hero in the near future.

Industrial Economy

The substance of industrial economy is the ins and outs of markets and prices. Literally, the foundation of industrial economics is Adam Smith himself. [12]

In 1870, the initiation of Adam Smith was, among others, continued by Alfred Marshall, Leon Wairas, Irving Fisher, who focused on market theory and price theory following the mind of the Neo Classical I school of thought.

Only in the 1920s and 1930s, was price theory and market theory refined by Sraffa, Chamberlain, Joan Robinson – all three laying the foundations of industrial economics that were popular with the theory of monopolistic competition and imperfect markets.

Sraffa, Chamberlain and Robinson were then referred to by people as the founders of the Neo Classical II school. Because of the background like that, then the price theory and the micro market theory that they developed, are considered to be advanced the Neo Classical I theorem.

There were many experts who then continued their studies, such as Edward Mason on price change, Robert Solow on the theorem of perfect competition, flexibility, mobility of factors of production and substitution, similar to the thought of Hicks (Neo Keynes). [13]

Referring to the experts, the main problem of the New Order industrial economy lies in the fact that monopolistic competition in the imperfect market, inmobility and inflexibility of production factors in the aggregate function is limited.
source of production funds (capital and labor), consideration of investors from Cendana, and investment decisions whose pattern and direction depend on “Soeharto’s economic machinery”. That is the 116 conglomerates.

So, the national development trilogy: growth – stability – equity of Rostow’s mind, is a source of legitimacy for the formation of a market oligopoly structure that is complemented by various cartel instruments, from the barrier to entry, tax and protection facilities, to the gentlement agreement to dictate prices. [14]

Research on the structure of the industrial market in Indonesia began rapidly since 1984 at the instigation of the government. This does not mean that there has been market competition before.

Because, since the bonanza oil passed with the establishment of the OPEC cartel (1971-1973), the government has tried to change the economic structure – which depends on the amount of petroleum revenues (60 percent of the state budget) – to the agricultural bio-chemical technology (green revolution) to sustain the national industry non-oil and gas uses a protection pattern. Practical industrial economy is only divided into two categories: oil and gas industry and non-oil and gas industry.

The manufacturing industry became a serious concern after experiencing bankruptcy due to the fiscal crisis that issued the world recession in 1982, where the Rupiah was devalued by 30 percent, respectively 1983 and 1985.

Furthermore, the government expelled industrial funds (which went bankrupt) that were parked in the central bank and government banks to the countryside in order to manage agribusiness by imposing a deposit tax, along with the threat of tracing the origin of wealth.

The capital flight from city to village, on the one hand succeeded in changing the national economic structure based on the primary sector and a strong agribusiness industry.

On the other hand, the manufacturing industry in urban areas remains collapsed. After the height of the recession passed, the government issued Land and Building Tax (PBB) regulations to recall capital from village to city while protecting the rural environment from the capital and farmers.

With the exception of the UN imposition, in 1986 the government launched deregulation debureaucratization, and banking liberalization to accelerate the flow of money through a series of banking packages to encourage industry and open capital markets. Once again the national economic structure changed and entered the category of newcomers of the NICs (Newly Industry Countries).

During the period 1987 to 1997, the market oligopoly structure was formed intensively when the players were under the control of the Cendana family, marked by modes of mergers and acquisitions between private multi national corporation companies and ruling private companies. CR-3 data (Concentration Ratio 3 Digits) shows from 313 types of manufacturing industries in KLUI (In Business Field Group

My argument is influenced by the Neo Keynesian structuralist school of Harrod-Domar model – some urgency of the Neo Keynes opposite the Neo Classical, especially the Supply Side and the derivatives of rational expectations – so in my opinion, Neo Keynes should be the main guideline for designing and listening national industrial problems because he was able to show the real economic potential of Indonesia as a developing country that was not affordable by Neo Classical. [6]

Returning to the figure of the ICOR in the Propenas version, the ICOR is interpreted as the amount of investment needed to increase GDP per unit. [7]

TFP is describing the contribution of economic productivity: the rate of growth, capital, quality labor and economic technology. The post-deregulation period (1988-1991), the TFP average accounted for 0.1 percent, while five years before the Domino Effect (1992-1996), the average contribution was negative 0.9 percent. Thus, it is almost certain that the TFP figure under the management of the Mega regime is not far from 0.9 percent. [8]

Adagium petitum: economic growth and development economics are two technically and philosophically different tools: economic growth aims at achieving the rate of economic growth, while the development economy is to achieve the rate of growth of development.

So, it could be that the rate of economic growth was successful, but the pace of growth in development failed, it should be linear.

Therefore, the structuralist school is more concerned with the aspect of COR economic development with the extent to which it is able to carry out changes in the economic structure caused by growth through the planning of multiplier effects in the application of production functions.

As a result, the role of COR in the development economy can be broader: the extent to which changes in economic structure, their shape and shift are caused by the multiplier effect of the production function in the growth rate – practically into the discipline of development politics in the perspective of the economic theorem of development.

Thus, specifically, economic development structuralism towards the industrial economy, is the process of shifting the structure itself, which is not the indicator that the success of development is determined by a shift in the economic structure of the primary commodity production sector (agriculture & mining) to the secondary sector (industry & construction) and to the sector tertiary (services) in the function of industrial developing countries. [9]

Considering a number of different variants between developed and developing industrial countries, such as a strong homogeneous labor and political workers, the basic understanding of structural changes in the practice of structuralism in developing countries’ development is the “transformation of and to an economic structure that changes the basic equilibrium of activities the economic structure of a society which is very dependent on the multiplier of investment in an open economic system “. In fact, the change can be planned, it can also take place extraordinary.

The Domino effect caused a tremendous change in Indonesia’s economic structure due to the extensively changed public portfolio composition by the United States dollar (USD) increase in the Rupiah currency during July 1997 – July 1998, then the effect of increased debt capital as capital investment from the IMF, World Bank, and Paris Club 1999 – 2003 into the production function. [10]

One of the striking changes due to the Indonesian monetary crisis was that the malaise naturally pushed for changes in the market structure that had been monopolized by 116 conglomerate companies which controlled 64 percent of GDP to become markets with competitive dynamics on the right track, while most of the 116 oligopoly companies went bankrupt. 11]

Now, in addition to the results of the transformation, it was marked by a shift in the activities of the primary production sector to the secondary production sector and the tertiary sector, also changing the production function and national product composition.

From the BPS data, the GRDP of several Regional Autonomies in 2004 showed a significant structural change, namely the increase in the number of workers who switched from the primary sector to the secondary and tertiary sectors.

Another indicator, is the increase in agricultural production in absolute terms, but the contribution of agricultural production to national products relative decreases, on the contrary the production of the manufacturing industry and the service sector increases relative and absolute.

Indicators of structural change are also evident from the shift in employment opportunities, namely the number of labor forces in each of these sectors: the number of workers in the agricultural sector tends to decrease towards the total labor force.

CR-3 data (Concentration Ratio 3 Digits) shows that from 313 types of manufacturing industries in the KLUI (Industrial Business Field Group) BPS, as many as 47 percent are oligopoly markets that change the company’s performance into rent seeking.

When the reform began, to save its power, which was threatened by the entry of the monetary crisis in July 1997, President Soeharto was forced to follow the IMF’s requirements to obtain a loan. The substance of the LoI itself is to eliminate the monopoly economy.

As Kruggman put it, technically, there are two factors that exacerbate the Domino Effect in Indonesia, namely: (i) the Suharto Economic Machine Foreign Debt, and (ii) the Policy Mark-up of a conglomerate company. But methodologically, it is a misinterpretation of the philosophy of the National Development Trilogy from Rostow.

“Like iron, the Indonesian economy consists mostly of steel with a little soft iron. So, when there is excessive pressure (krismon), the iron is not curved, but it is immediately broken. Steel is the analogy of a large national corporation, whereas soft iron is a small medium-sized company, “said the MIT economics professor.


The formulation of the ICOR legislation in parliament makes the concept of state administration with a development governance measure that incorporates ICOR. ICOR becomes an operational concept of development control.

In the New Order, the ICOR was able to play a pressure group against Soeharto’s power voiced by leading experts to control the performance of the parliament.

It seems quite difficult. For those who do not explore the philosophy of economics, problems arise immediately before arriving at the basic idea.

The ICOR itself may be nothing more than mathematical propositions for analysis of relationships which for many people are not real.

How to make real ICOR or IRR (Internal Rate of Return), for example? But without an IRR, we know that there will be no physical development projects that we can measure measurably.

The IRR itself is simple. But the complexity is very wide,
making a few understand, since: Assets, Balance Sheet, NPV (Net Present Value), RoI (Return on Investment), RoA (Return on Asset), BEP (Break Event Point) issues which lead to Financial Plan plus country risk index in Business Plan what is simple.

But with these parameters, it is known how far and where deviations occur, why they occur, and where they come out.

I think, the ICOR must be included in a number of laws on economic and monetary physical development, the National Development Planning and Finance System Law, the Law on a number of National Supervision Bodies, Authority and Regional Autonomy, the Law on National Economic Councils and the Act which specifically involves technical departments.

So, the broad basic problem is divided into two: (i) ICOR as a concept and system, and (ii) ICOR as an operational system as a means of parliamentary control.

Currently, what PAN faction is using? I have not heard. Controlled the ICOR of the Mukidi Bro!


[1] In September 2004 was the Research Director of JMC Research and the General Secretary of Intelrist Research; Chairperson of PAN DKI Jakarta DPW Equity Commission, Member of Commission III of the DPR-RI; Working Group on the Code of Ethics of PAN DPP Faction, Field of Equin – Concentration of Industrial Economics.

[2] Roy F. Harrod (1900-1978) was an exponent of Neo Keynes, a pioneer of the ICOR theory of economic growth. Evsey D. Domar (1936- ..) pioneers the multiplier theory of investment in economic growth as well as Keynes. In the course of economics, Harrod and Domar formed the Harrod-Domar Model analysis techniques and perspectives that were widely used and debated by the founders of the foundations of development economics theory, including industrial economics.

[3] ICOR figures early 1997 version Prof. Sumitro Djojohadikusumo amounted to 3.0, mainly due to economic distortions in the form of: inefficiencies in the market oligopoly structure, rent seeking and corruption (mark-up policy).

[4] Propenas 2000-2004: Law No. 25/2000 concerning the 2000-2004 National Development Program, Sinar Grafika, 2001: 108.

[5] The principle of mutiplier nivestasi Domar: because the rate of effective demand growth is directly confronted with the growth of production capacity, then: growth in demand = increase in investment (I) multiplied by multiplier (I / s), then growth in production capacity = investment (I) divided by capital output ratio (k).

[6] Furthermore, check out Soeroso Djazuli, “New Classic in Indonesian Economic Growth”, FE Unair, 1987. Then, Sumitro Djojohadikusumo, Prof., “Development of Economic Thought: Basic Theory of Economic Growth and Development Economics”, LP3ES, 1997.

[7] Propenas version, formulation of ICOR1 = (I1-1) / (GDP1-GDPi-1).

[8] Propenas’s TFP formulation: /Y / Y = ά (ΛK / K) + β (ΛL / L) + TFP, where ά and successive β express the elasticity of capital and labor growth (L) against the growth of GDP assuming the production function is constant return to scale (ά + β = 1).

[9] Nicholas Kaldor, Prof., “Collective Economic”, 1980, II: 8, Essay on Economic Stability and Growth.

[10] The US experienced a similar monetary crisis, the Great Depression of 1929, starting with Black Tuesday (the fall of the New York Stock Exchange’s stock price). The main objective of the establishment of the IMF and World Bank by John Maynard Keynes and Harry Dexter, was to overcome the Great Depression of Brettonwood implementation.

[11] Djoko Edhi Soetjipto Abdurrahman, “Conglomerate and CR-3 Manufacturing Industry”, Skh Bisnis Indonesia, 1997, JMC Research, 1996.

[12] Nurimansyah Hasibuan, Prof., “Competition, Monopoly, Oligopoly,” LP3ES, 1993.

[13] Today’s Neo-classics are all economic thinkers who oppose the teachings of Neo Keynes, including Milton Friedman’s monetaryism whose ideas are derived from Irving Fisher’s scientific work.

[14] Hall Hill, Prof., “Structure of the Oligopoly of Manufacturing Markets in Indonesia”, LP3ES, 1995


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