THE IMPACT OF WORLD CPO PRICE CHANGE TOWARDS PRICES , ECONOMIC ACTIVITIES , AND INCOME DISTRIBUTION IN INDONESIA

This paper analyzes the impact of world CPO change price towards prices, economic activities, and household income distribution using CGE Models. The first model assumes that Indonesia is a price taker, while the second model assumes that Indonesia could influence the price. The main data were taken from Indonesian Social Accounting Matrix 2008. The simulation results suggest that if Indonesia takes the role as a price taker, an increase in world CPO price will affect exchange rate, decrease prices, and improve economic activities, but it slightly worsened household income distribution. On the other hand, a decrease in world CPO price will bring about the opposite impacts respectively. Conversely, if Indonesia takes the role as a main price influencer, world CPO price change will lead to a similar result with less magnitude impacts. These findings suggest that Indonesia should be able to take the role as a price taker when world CPO price is increasing and as a main price influencer when world CPO price is decreasing.


RESULT AND DISCUSSION
Based on the simulation result,   However, an extra strong currency would create negative impact in the form of weaker competitiveness at international market, which therefore would diminish real export.The  She examined the consequences of international palm oil price fluctuation on domestic palm oil price and assessed price impact on welfare in Indonesia using econometrics model.
One of her finding was increase of international price will be followed by increase of domestic price which would lead to welfare inequality between the poor and the rich.
Another research conducted by Bhattacharyya and Williamson (2016) also

RECOMMENDATIONS
In the period of 2011 to 2015, the Indonesian economy grew at the average of 5.51%.One factor that can explain the slowdown was the under performance of export.Weakness of global demand and declining prices were the underlying background coupled with the decreasing price of main export commodities in the international market.One of those commodities is CPO.In the recent 6 years, world CPO price (Rotterdam market) is relatively fluctuated.From 2010 to 2015, there have been at least six times of uptrends and downtrends.It is noted that in this recent three years, after showing a promising uptrend from December 2012 to February 2014, the price started its plunging tendency until nowadays.The dynamics of world CPO price is strongly influenced by the price of other commodities, besides its global supply and demand (Rahman, 2017).The descending world CPO price in recent two years cannot be disassociated with price weakness on other commodities.The movement of world CPO price would be transmitted to domestic CPO price.Figure 1 shows that the domestic CPO price (Belawan) is strongly integrated and move in line with the world CPO price.

Figure
Figure 3. Export Demand and Import Supply for Small Country are endogenous, i.e their values should be equal to benchmark values in baseline position and would change accordance with the change (shock) in either parameter or exogenous variables in the system.Meanwhile, the parameters are exogenous, where detemination of their values are based on SAM data and previous research.
under the large country assumption, any increase in the world CPO price will drag up real CPO export.The increase in world CPO price could be the representation of increase in external demand.From the view point of producers or exporters, this is a good incentive to boost export.The rise of world CPO price of 10, 25, and 50 percent would likely increase CPO real export as much as 40.74, 128world CPO price of 10, 25, and 50 percent would -in the long term -strengthen IDR as much as much as 3.30, 10.70, and 24.60 percent ( price, which therefore the purchasing power of household would remain safe. decrease of composite price would be caused by the decrease of two constructing factors, which are domestic output and import (in IDR), where the price of imported goods would fall deeper compared to domestic output price.The decrease of import is caused by the strengthening of IDR compared to most of foreign currencies.As one of the results, the decrease of import price would bring incentive to an increase in import volume.The increase of domestic output coupled by rising import would increase the availability of composite goods, which in turn would increase household consumption, which would give hint on a better welfare.In general, a 10, 25, and 50 percent of world CPO price would increase household consumption as much as 0.34, 1.01, and 2.31 percent consecutively.This result confirms the research of Rahardja et al. (2010) that stated the benefit for Indonesia if the global commodity prices are high due to the position of Indonesia as a net commodity producer and exporter.The result is also in line with research conducted by Quero-Virla (2016) in Colombia.He studied the effects of oil price changes on the Colombian economy (as an oil exporting country) during 2001:Q1 to 2016:Q2 using a structural vector autoregression model.The result showed that increase in the oil price generates a contemporaneous increase in GDP growth, decrease in unemployment, and decrease in inflation.
indicated the similar result.The research studied the distributional impact of commodity price shocks in Australia using GARCH model and found that commodity price shocks increase the income share of the high income groups in the short run.CPO price is estimated to bring generally similar impact with posing Indonesia either as a small country or as a large country.The difference lies in the magnitude of the impact.As an example, the impact on export for Indonesia as a price influencer, the rising world CPO price would increase real export appropriately.It could happen because the currency strengthening of a large country would not be as big as the small country, therefore the export price at international market would be kept competitive.The simulation result on the decrease of world CPO price shows an opposing impact compared to the impact of increasing world CPO price.In general, the decreasing world CPO price would bring adverse effect on the Indonesian economy.Income equality among household would become the only good result ( Based on the above description, world CPO price changing would affect economic activity, price level and income distribution in Indonesia.Magnitude of the impact depends on the role taken in price forming and the price shock scale.In the forming where Indonesia takes the role as a price taker, the rising world CPO price is estimated not only to increase economic activity, to strengthen the currency, to lower prices, but also to enlarge income gap.The bigger shock given to the model, the impact would also get bigger.If posing as a price influencer, the rising world CPO price would bring similar direction of the effect but with smaller scale.One of the differences happens on the value of real export, where bigger shock on world CPO price would bring an increase on real export.On the other hand, by posing as a price taker, the bigger price shock would weaken real export or even cut it down.It is caused by high currency strengthening at price taker position.The decrease of world CPO price is estimated to have opposing impacts compared to its increase, where the impact as a price influencer is smaller than the impact as a price taker.Based on this finding, Indonesia would be able to get more benefit at the world CPO market by optimizing its role on the price forming, by being able to play the role either as a price taker or price influencer on the right time.In which Indonesia should take role as a price taker when world CPO price is increasing and as a price influencer when world CPO price is decreasing.At the bullish commodity market, being a price taker would bring benefit in terms of economic activity, currency strength, domestic price and household income.The policy in deciding to take the role as a price taker should be accompanied by supporting policies intended to mitigate the widening income gap as the consequence of being a price taker.Besides, it would be also important to wisely manage the extra income from increased world CPO price.Therefore Indonesia would be able to manage currencies, especially at the hard times.On the other way around, if the world CPO price tends to decline, being price influencer would bring a lot of benefits due to ability to manage the price.In such position, Indonesia would be able to minimize