Interesting reading - written by a young ITB alumni, with thanks to Sri for forwarding this.
-hms- _____ From: Srisetiowati Seiful [mailto:srise...@gmail.com] ************************************ http://rivanroyono. <http://rivanroyono.wordpress.com/2009/08/26/the-economics-of-ramadhan/> wordpress.com/2009/08/26/the-economics-of-ramadhan/ August 26, 2009 The Economics <http://rivanroyono.wordpress.com/2009/08/26/the-economics-of-ramadhan/> of Ramadhan Rivandra Royono I started fasting at a very young age. Not necessarily out of extreme piousness, but rather because I wasn't much of an eater and was only too grateful to be allowed not to have lunch for an entire month. On top of that, by a five year-old's logic, I believed I was doing my parents a big favor by cutting down expenses for food. That five year-old's logic is turned completely upside down by reality. As a matter of fact, households' expenses in Indonesia, as well is in other predominantly Muslim economies, increase quite significantly during Ramadhan. Apparently, during the holy month, the overwhelming majority of Indonesian households increase their consumption, which pushes up demand, thus increases price. So not only do households buy more stuff, they buy them at higher prices. If there are still people out there who are skeptical that Ramadhan induces higher inflation, governments of predominantly Muslim countries all over the world are certainly not. From Indonesia to Jordan, governments recognize the immense increase in demand and are already rushing to intervene the market by either upping supply or imposing ceiling price. However, even with such relatively massive intervention, the demand shift is usually too significant and higher inflation is inevitable. Indonesian Trade Minister Pangestu already found 11 to 33 percent increase in price of foodstuff in Bandung a day before Ramadhan started. That price increases because of rising demand is basic economics; that demand increases during what is supposed to be the month of frugality is nothing short of an irony. The major culprits behind this demand shift are likely to be the middle and upper classes, who have the means to consume more. What really causes the consumptive behavior is up for grabs. One explanation is that we are all too sensitive to our loss of utility-loosing meals during the day-and overcompensate it by consuming more in the evening and during Ied. A more common term used for this hypothesis is balas dendam-avenging for our loss. Or perhaps it is impulse buying and herding movement-we see everybody else eating out, having feasts with friends and family, and we are compelled to join the wagon. It's quite easy to justify these impulses by saying that it's all in the spirit of strengthening silaturahmi or bonds among the ummat. Regardless of what really caused demand-pushing behavior, what we really need to understand is that the significantly higher inflation during Ramadhan hurts the poor tremendously. Most of them do not work as traders and would not feel the benefit of the inflation. Yet they would certainly feel the impact of increased price, especially of basic goods. Cutting down both quantity and quality of food is often the only option. Worse still, in the effort to reap benefit from the inflation, some traders would be compelled to sell damaged goods at lower price; and they would certainly find buyers. Nearing Ramadhan, officials from Jakarta had raided a number of stalls in traditional markets that sold spoiled chicken and meat. It is the poor who would most likely buy and consume these damaged goods, and later suffer the consequences. To be fair, demand shift and inflation are not the only Ramadhan-induced economic phenomena. While an in-depth analysis of aggregate data is required to validate the following statement, anecdotal evidence indicates that the holy month also brings about increased redistribution of wealth. It is after all the month of charity. However, increased alms-giving, be it compulsory like the zakat or voluntary like the sadaqoh, would only significantly benefit the poor in a low-inflation economy; and as we have seen, this is not the norm during Ramadhan. Coupled with inflation, alms would most likely only help the poor maintain their purchasing power, but not increase it. Furthermore, while inflation affects the entire population, alms tend to be targeted to only small pockets of the same population. Hence, though there would indeed be poor households who received assistance in coping with the inflation, most of the lower class population would only feel the full-blown effect of increased price without receiving significant support from the redistributed wealth. In the light of everything, the middle and upper classes would actually help the poor more by not spending than by giving. So all this leads the Muslim middle and upper classes to two options. If we really wish to help the poor during the holy month, we should increase expenses for alms and decrease-or at least maintain-consumption by refraining ourselves from hosting or going to feasts at the daily break of fasting, as well as during Ied. We should also decrease consumption by avoiding eating out and refraining, or at least deferring, expenses to buy new clothes. This would help lessen the demand shift, thus lowering inflation, and at the same time increase the poor's purchasing ability. This would also-and perhaps this is the most important thing-be more consistent with the spirit of Ramadhan, in which frugality is supposed to trump extravagance and contentment wins over dissatisfaction. The second option is to give in to our impulses and oversensitivity to loss of utility. We can continue increasing our spending for food during the holy month. We can go from one feast to the next and host one in between. We can, in effect, significantly increase demand and raise price, and justify that by saying that it's all in the name of strengthening silaturahmi and bonds with family and friends. During all that, we can make us feel good about ourselves by increasing alms and providing meals for a small group of poor families in the evening. Opt for this, and we would at best maintain the utility of a small group of poor people at the same level, while making life harder for most lower class households in the country. Sadly enough, in this holiest month of the year, we would most likely observe the latter scenario. An edited version of this article was featured in Jakarta Globe <http://thejakartaglobe.com/opinion/this-ramadan-consider-the-irony-of-a-mon th-of-gross-consumption/326005> __________ Information from ESET Smart Security, version of virus signature database 4385 (20090831) __________ The message was checked by ESET Smart Security. http://www.eset.com __________ Information from ESET Smart Security, version of virus signature database 4385 (20090831) __________ The message was checked by ESET Smart Security. http://www.eset.com [Non-text portions of this message have been removed]
