OPINION
7
Does Japan vindicate modern monetary theory?
P
ublic debt has soared
since the 2008 finan-
cial crisis, and especial-
ly during the COVID-19
pandemic. According to the Inter-
national Monetary Fund, the ratio
of public debt to gross domestic
product (GDP) in advanced econ-
omies increased from around 70
percent in 2007 to 124 percent in
2020. But the fear that rising pub-
lic debt will fuel future financial
crises has been subdued, partly
because government bond yields
have been so low for so long.
Although yields started falling
much earlier, in the 1990s, they
were kept low by quantitative
easing (QE) after the 2008 and
2020 recessions. Few doubt that
massive fiscal expenditures were
warranted to alleviate suffering
during those episodes. But advo-
cates of Modern Monetary The-
ory (MMT) take this logic a few
steps further.
Advocates of MMT contend
that as long as debt is denominat-
ed in a country’s own currency,
there is no reason to fear a fiscal
crisis, because a default cannot
happen. Any withdrawal of fis-
cal stimulus therefore should be
gradual. And in the meantime,
Precious asset: A forest area near Mount Meratus in South Kalimantan is seen from Hinas Kanan village on Nov. 25. The local forestry
authorities have admitted to losing 30,000 hectares of forest to mining and plantation industries in the last three years.
Carbon trading future and
implementation challenges for Indonesia
T
he United Nations  Cli-
mate Change Conference
of the Parties (COP26)
in November in Glasgow, Scot-
land, appeared to have brought a
new wave of optimism for the fu-
ture of carbon trading, as shown
in the issuance of Presidential
Regulation (Perpres) No. 98/2021
on the implementation of carbon
pricing for achieving nationally
determined contribution target
and controlling greenhouse gas
emissions in national develop-
ment (Perpres No. 98/2021).
This presidential regulation
was issued because of the increas-
ing number of countries that apply
carbon pricing (carbon taxes, car-
bon trading) instruments to reduce
carbon emissions. Data from the
Chicago Climate Exchange (CCX)
from 2020 to November  shows
that the carbon market has contin-
ued to grow despite the economic
recession. Currently, 3.76 percent
of carbon emission reductions are
carried out through carbon trading
at a price of US$40 to $80.
Despite the growing demand,
the supply of the carbon market is
still lower than the expected target
to fulfill the first Kyoto Protocol.
There are currently two indepen-
dently operated carbon markets:
the compliance market and the
voluntary market. The compli-
ance market is mainly driven by
the Kyoto Protocol, while the vol-
untary market is driven by the in-
dustrial sector and pressure from
investors to meet the net-zero
emissions target.
Nowadays, many countries
have regulated international car-
bon trading. However, this scheme
may potentially reduce the car-
bon credits owned by the selling
country, which in turn may reduce
the nationally-determined con-
tribution (NDC) target. There-
fore, Indonesia insists on certain
flexibilities in international car-
bon trading. There is a trend of in-
creasing demand for carbon cred-
its in the voluntary market, while
the supply remains small.
Many countries participat-
ing in COP want to be quickly in-
By Takatoshi Ito
Project Syndicate/Tokyo
A former Japanese deputy vice minister of finance, and
currently a professor at the School of International
and Public Affairs at Columbia University and a senior
professor at the National Graduate Institute for Policy
Studies in Tokyo
new issues of public debt can be
used to fund infrastructure in-
vestments, income-support pro-
grams, and other items on pro-
gressives’ agenda, provided that
the inflation rate remains below
the central bank’s target (gener-
ally around 2 percent).
MMT’s boosters cite Japan as
proof of concept. Even though
Japan’s debt-to-GDP ratio (in-
cluding both central and local
government) is above 250 per-
cent, compared to 160 percent
in the United States, its ten-year
government bond yield has re-
mained at around zero through-
out the COVID-19 pandemic,
and its average inflation rate
has barely exceeded zero for 20
years. Annual new bond issues
and soaring debt levels have not
had any apparent impact on bor-
rowing costs.
But before other countries rush
By Rio Christiawan
Jakarta
An associate professor of law at Prasetiya Mulya
University
volved in international carbon
trading under the condition that
there are transparency, suitable
prices and flexibility to either put
it in NDC or sell it. For example,
climate impact X provides a plat-
form for carbon trading that ful-
fills the wishes of the country
holding the carbon credits.  This
certainly shows the future of car-
bon trading for Indonesia, includ-
ing the trend of carbon trading in
the voluntary scheme.
So far, ecosystem restoration
has been regarded as a sustain-
able forestry business because it
restores the forests that are dam-
aged due to exploitation. As there
is no written basis for restoration
in the forestry laws, this discretion
is incorporated into the forest uti-
lization business license (PBPH)
in the new Job Creation Law.
There are 14 types of forest uti-
lization in PBPHs that are consid-
ered multibusiness, one of them
being non-timber forest product
and carbon trading that may be in-
cluded in the ecosystem restora-
tion scheme. Out of 16 restoration
licenses that have existed since
2007, only three to four  compa-
nies have practiced carbon trading
in the voluntary market.
Carbon trading business
through forest concession re-
quires various efforts to protect
the forests. In addition to keeping
the concession away from fires, il-
legal logging and encroachment,
the concession owner also needs
to restore the forest into its origi-
nal ecosystem. Hence, coopera-
tion with the communities around
the concession is non-negotiable.
To avoid encroachment — a
technique of setting fire to an
area of the forest for communi-
ty plantations — the restoration
company must encourage them
to implement sustainable for-
est management or provide new
sources of income so as not to
WEDNESDAY December 29, 2021
to emulate Japan, they should
bear in mind that Japanese gov-
ernment bonds are issued in yen,
and almost all are held by Japa-
nese residents, both directly and
indirectly through financial insti-
tutions and the central bank. This
makes Japan quite different than
the US, whose Treasury bonds are
held by investors worldwide.
Some Japanese politicians
think their country should be
praised as an MMT exemplar.
Just this month, the Diet ap-
proved a supplementary budget,
which relies on issuance of 22 tril-
lion yen (US$192 billion) in new
bonds, on top of the 44 trillion yen
in the initial budget. Total new is-
sues this fiscal year thus come to
66 trillion yen, or about 12 per-
cent of GDP. One of the contro-
versial expenditure items in the
supplementary budget is to trans-
fer 100,000 yen to all resident mi-
threaten the ecosystem restora-
tion process in concession areas.
Indonesia is committed to
achieving Sustainable Develop-
ment Goals (SDGs) by 2030. One
of the forms of support  for sus-
tainable development is the For-
est Utilization Business License
on Ecosystem Restoration as a
form of sustainable forest area
management.
There are two main components
of an ecosystem restoration man-
agement project, namely area man-
agement and institutional manage-
ment. In the first component, area
management, there are three pil-
lars: biodiversity, community de-
velopment  and climate change.
The three pillars are in accordance
with the sustainable forest man-
agement principles set out by the
government, namely environmen-
tal sustainability, social sustain-
ability  and economic sustainabil-
ity. Right now, the harmonization
of activities in the forestry sector is
still needed to support SGDs.
Ecosystem restoration schemes
are located in production for-
ests.  Generally, restoration con-
cessions used to be productive for-
est areas with Forest Management
Rights (HPH) that no longer have
timber, so the HPH permits are
suspended or the HPH permits
were revoked as a result of unsus-
tainable management. The key to
ecosystem restoration is that the
program must be socially accept-
able, economically viable and eco-
logically sustainable.
There are six SDGs related to
the environment: clean water and
proper sanitation, sustainable cit-
ies and settlements, responsible
consumption and production, cli-
mate change management, ma-
rine ecosystems  and terrestrial
ecosystems. The ecosystem resto-
ration business has become part
of the SDG road map and low-car-
bon development road map.  Ministry.  powder keg.
Please send your articles to opinion@thejakartapost.com.
nors (18 years old or younger).
One thing MMT advocates get
right is that the Japanese govern-
ment need not, and should not,
default on its debt. Even if there
are no buyers for it, the Bank of
Japan (BoJ) can continue to pur-
chase new and rolled-over bonds
with cash injections. This may
invite very high inflation. But
MMT advocates would say that
bond issues can be stopped if
and when the inflation rate ex-
ceeds 2 percent.
The problem is that by then,
it may be too late. With the stock
of debt having grown so large, it
would require a massive and sud-
den fiscal consolidation to pay for
redemption of existing maturing
bonds. A sudden stop of bond is-
suance at a 2 percent inflation
rate would likely result in a sharp
recession. The only other option
would be for the BoJ to continue
to buy up the debt, which would
result in still higher inflation, if
not hyperinflation.
Moreover, the fact that a de-
fault can be avoided does not
mean that continuing to issue
bonds after the acute phase of
the crisis enhances social wel-
fare. Cash transfers, such as the
Antara/Bayu Pratama S
The SDGs in Indonesia mention
the importance of involving the
private sector in reporting various
forms of support for sustainable
development.  Currently, the Fi-
nancial Services Authority (OJK)
is designing a green taxonomy for
the private sector in hopes that
sustainable development will be-
come mainstream.   The environ-
mental development pillar con-
sists of six SDG goals, and several
targets related to the forestry sec-
tor are contained in the 15th goal of
the SGDs: life on land. Low-carbon
development is the cornerstone
in achieving net-zero emissions
through collaboration between
government and non-government
sectors.  Currently, the govern-
ment is also preparing a green fis-
cal stimulus and other low-carbon
fiscal instruments.
The implementation of the
new forestry business ecosystem
after the Job Creation Law for
the achievement of SDGs stated
that the incorporation of SDGs
in the vision and mission to en-
courage the achievement of the
Environment and Forestry Min-
istry’s 2020-2024 goals are in the
form of four pillars, namely envi-
ronmental, economic, social and
good governance.  ing nuclear plants and switch to
The reconfiguration of forest
management as a single ecosystem
(landscape management) consists
of environmental management,
social management  and econom-
ic management.  Landscape man-
agement/sustainable forest man-
agement can be achieved through
multiple forestry businesses and
strengthening the community’s
legal access.  In sustainable for-
est management, it is necessary
to emphasize the components in
sustainable forest management,
namely area certainty, business
guarantee, productivity, product
diversity and competitiveness.  fragile peace has been quietly
In the end, the integration of
policies between sectors is im-
portant to encourage economic
transformation toward  a devel-
oped and resilient Indonesia led
by the Environment and Forestry
one just approved, and other pro-
grams benefit current genera-
tions, whereas the tax burden of
eventual bond redemption will be
borne by future taxpayers — many
of whom may not yet be alive. And
even when existing bonds are
rolled over indefinitely, interest
payments for debt-financed cur-
rent consumption will be borne
by future generations.
MMT’s validity partly depends
on projected real (inflation-ad-
justed) growth per capita. If the
population is growing and future
generations will be richer than
current ones, the “burden” of cur-
rent bond issues will indeed be
small. In this sense, bond issues
for consumption function like
pay-as-you-go pension systems.
As long as the economy is growing
faster than the interest burden,
PAYGO is a sensible approach, be-
cause each generation can simply
shift the burden to the next gen-
eration, ad infinitum.
Like a Ponzi scheme, this works
only as long as the base of the pyr-
amid keeps expanding. In the
US, the government may be able
to keep increasing its debt and
maintaining its PAYGO social-
security system for several de-
So long 2021,
looking ahead
at 2022
By John J. Metzler
New York
A United Nations correspondent covering diplomatic and defense
issues and the author of Divided Dynamism — The Diplomacy of
Separated Nations: Germany, Korea, China
T
he political reverbera-
tions following America’s
botched withdrawal from
Afghanistan still shake the geo-
political landscape from Ukraine
to the Taiwan Straits. But shall
military calculations in Moscow
and Beijing take advantage of a
perceived power vacuum in the
wake of the Afghan fiasco or will
diplomacy deflect the sword of
aggression?
As we enter the New Year
2022, let’s go to the proverbial
snow globe and peer into the fu-
ture. Presidential elections are
scheduled in France, Brazil, and
South Korea.
Now let’s review some global
hot spots.
In Europe, Russian President
Vladimir Putin’s possible plans
for Ukraine are bound both by
a nostalgic nationalism and a
murky national mission in re-
viving and rebuilding spheres
of influence into a Greater Rus-
sia. Putin’s perception is that the
West will talk tough, act macho
and then fall back to stern sound-
ing Communiqués and tepid eco-
nomic sanctions.
But would the Kremlin attack
Ukraine in mid-Winter? Rus-
sia’s armor and mechanized in-
fantry units would not be at their
optimum in such weather con-
ditions. Never underestimate
General Winter! Moreover, are
Moscow’s plans aimed at carving
away more of eastern Ukraine,
thereby reinforcing an already
de facto occupation since 2014,
or to seize the entire country?
Despite a lack of defense trea-
ty commitments, can the United
States and NATO be pulled into a
conflict to defend Ukraine?
Germany’s federal elections
tilted the country to the cen-
ter-left. For the first time in 16
years a Social Democratic/Green
government has assumed pow-
er in Berlin. Early indications
are mixed, but in a bow to
the powerful environmental
lobby, the new government
wants to close remaining operat-
additional energy supplies from
Russia.
Germany and most of Central
Europe are already intertwined
in a dangerous dependency on
a web of Russian natural gas
pipelines. Now the newest Nord
Stream 2 Gazprom link, to which
the Biden administration gave
the green light, still needs to
get regulatory approval from
both Berlin and Brussels. There’s
an uneasy nervousness in Ger-
many having supported this new
pipeline.
Watch the Balkans. Bosnia’s
unravelling amidst a Serb pow-
er grab in the ethnically divid-
ed land. The Yugoslav civil war
of the 1990’s should be a lesson
but stealth plans by the Bosnian
Serbs could reignite this Balkan
cades to come. But Japan enjoys
no such luxury. Its population has
been declining since 2008 (and
its working-age population since
1998), and its per capita income
has been stagnant for 30 years.
The scheme will soon collapse.
Japanese voters and politi-
cians cannot keep treating cash
raised from new and rolled-
over bond issues as manna from
heaven. If the electorate wants
income redistribution, it must
accept that the transfer should
come from today’s rich (many of
them elderly), rather than from
future generations. And if the so-
cial-security system has become
too generous, owing to over-
ly optimistic projections, there
should be a claw-back.
If, on the other hand, fiscal
stimulus is needed, the spending
should be directed more wisely
to support future growth, such
as by boosting investment in hu-
man capital and innovation. But
a blanket endorsement of MMT
and its policy implications is the
last thing Japan needs. Now that
the acute phase of the crisis is
over, Japanese leaders would do
well to start thinking about the
country’s huge stock of debts.
In East Asia, the pendulum for
now has shifted from the divid-
ed Korean Peninsula to the long
overlooked Taiwan Straits sepa-
rating communist China from
the democratic island of Tai-
wan. Over the past few decades
despite massive economic links
between the two Chinas, the per-
ception emerged that military
threats were nearly nil.
But Beijing has never re-
nounced the use of military force
to retake its “renegade province”
and has militarily bullied Taiwan
for over a year with airspace in-
trusions and provocative probes
by 940 military jets.
The Winter Beijing Olympics
offer a chapter break; China’s
communist regime must stay on
best behavior till after the Games.
Is this the moment for the forced
“reunification” with the commu-
nist mainland through a military
attack on democratic Taiwan?
Probably not quite yet.
Nonetheless grey area war-
fare and an incremental squeeze
on the small island may increase
with additional air force and
possibly fishing fleet probes
into Taiwan sovereign airspace/
territory.
What is the US response? Jim-
my Carter abrogated the formal
US defense treaty with Taiwan
back in 1979. The US has many
serious options but no legal mil-
itary commitment to defend
Taiwan. Still there’s strong bipar-
tisan support in the US Congress
and the Biden administration to
protect Taiwan in some manner;
it used to be called “strategic am-
biguity” as to keep the Chinese
communists guessing. Washing-
ton’s policies are no longer so
nuanced.
The Biden administration’s
appalling pullout from Afghani-
stan spilled blood in the water
tempting aspiring aggressors.
In Middle East, the ongo-
ing conflicts in Syria and Yemen
churn on with war, refugees and
humanitarian crises being the
bloody byproduct.
In Latin America, the politi-
cal win of the presidency by the
hard left in Chile, a fairly pros-
perous and democratic country,
follows a similar electoral vic-
tory a year earlier in Argentina.
Will the upcoming elections in
Brazil and Colombia continue
this trend?
When it comes to COVID-19
pandemic, more than 5 million
people have died worldwide from
the virus with more than 816,000
in the US alone. Ironically during
2021 more Americans died from
COVID-19 than during 2020 be-
fore there were vaccines.
COVID-19 has inflicted mas-
sive human, economic and psy-
chological stress and suffering
globally. The time has come for
countries to share vaccines with
the developing world.
Nonetheless, our era has a
very 1970s feel to it.