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July 3, 2013

July 3, 2013

Indonesia Takes Some Bitter Medicine

Two weeks ago the government of Indonesia acted to reduce the weight of one of its most troublesome holdovers from the Suharto era.  President Susilo Bambang Yudhyono raised the prices of subsidized fuel — gasoline by 44 percent and diesel by 22 percent.  The government was responding to the unsustainable and damaging pressures that the subsidies had long brought to bear on the Indonesian economy — chiefly a severe budget strain that kept the deficit high, weakened the rupiah, and caused international investors to cast a jaundiced eye on the country’s future economic prospects.

Leading up to last Friday’s fuel price hikes, on June 16 the parliament revised its 2013 budget to include compensation for poor Indonesians who will be worst-hit by the fuel price increases.  This is an offering meant to defuse the sort of unrest that greeted last year’s attempt to push through the same kind of reforms…

Current Account Deficits Have Hammered the Rupiah since September 2012  (chart shows the number of Rupiah per USD is climbing).
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Source: Bloomberg

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Proposed IRA Contribution Caps Aimed at Reducing What Younger Workers Will Be Allowed to Put Away

In an article from Barron’s June 22nd, Amy Feldman delved into the consequences and confusions of new caps on IRA contributions in the U.S. President’s budget (“President Obama Thinks Your IRA Is Too Big”).

The potential ramifications of the proposal are not a matter of immediate concern, since the budget is still just a twinkle in lawmakers’ eyes.  No need to contemplate radical asset relocations because of these proposals yet.  Still, it is worthwhile to trace the consequences that the proposal may have for workers in different stages of their careers, since some form of it may eventually become law.

Although the proposal is theoretically straightforward, the devil, as usual, is in the details…

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