66 Finance & economics The EconomistJune 1st 2019
2 for firms to shed workers in lean times,
they are reluctant to hire in good ones. Pric-
ey severance also helps explain why 60% of
Indonesian employees work in the infor-
mal sector, and why many of those who do
not are on temporary, rolling contracts.
Unemployment for 15- to 24-year-olds
stands at 16%, which is high by regional
standards and three times the rate for the
working-age population as a whole. That
may be partly because young people are
holding out for plum jobs in the civil ser-
vice, where kickbacks are easily extracted,
or in the natural-resources sector, where
pay is high, says Chris Manning of Austra-
lia National University. But youth unem-
ployment is highest among university
graduates, suggesting a mismatch between
the skills taught and those needed.
Hence an idea popular among policy
wonks: to improve vocational schools and
government training schemes. School re-
forms would take a generation to be felt,
but better training for the existing labour
force could create more jobs within a year,
argues Chatib Basri, a former finance min-
ister. That would give Jokowi the political
capital and momentum he needs to press
for further changes.
The reform economists think would be
most effective would be to make it easier
for foreigners to invest. A study by the oecd
found that Indonesia’s rules for foreign di-
rect investment (fdi) were the third-most
restrictive out of 68 rich and middle-in-
come countries. fdi as a share of gdp has
averaged 1.5% over the past three years,
among the lowest in the region (see chart 2
on previous page). Red tape makes it hard
for foreign workers to move to Indonesia.
They are less than 1% of the workforce.
Loosening these rules would help to re-
vive the ailing manufacturing sector. Indo-
nesia struggles to compete with neigh-
bours with better infrastructure and lower
payroll costs. That is particularly the case
in export-oriented industries such as
smartphone assembly and shoemaking. In
Vietnam the value of imports plus exports
is around 195% of gdp; in Indonesia it is
about 43%. Cutting import restrictions
would also help. Mr Basri points out that
90% of Indonesia’s imports are raw materi-
als or capital goods, such as machinery,
which keep factories humming.
An influx of foreign firms could have di-
rect benefits for the education system, too.
In Malaysia and Thailand, unlike Indone-
sia, foreigners can establish and operate
universities. Moreover, foreigners could
help train Indonesians. Skills are taught at
least as well on the factory floor as in the
classroom. Google has launched a scholar-
ship to teach Indonesian students to code;
it says it has already trained 110,000 app de-
velopers. Jokowi’s aim of upskilling Indo-
nesia is admirable. The best way to do it is
to attract skill-hungry businesses. 7T
heexcitementamongcrypto-buffs
is palpable. Facebook, the world’s
largest social network, appears to be
planning to launch a digital coin early
next year. But they should not get their
hopes up too high. If the firm does in-
deed launch what is being dubbed fb
Coin, GlobalCoin or Libra, it will be a
tame sort of cryptocurrency—more
Bitcoin 0.5 than 2.0.
Facebook has declined to comment
on the speculation, but is clearly up to
something. Last year it put a highly re-
garded senior executive, David Marcus,
in charge of a new team exploring “ways
to leverage the power of blockchain
technology”, which underlies crypto-
currencies. In April Mark Zuckerberg,
Facebook’s boss, said at its annual shin-
dig for developers that it “should be as
easy to send money to someone as it is to
send a photo”. It seems to be talking to
potential partners, such as credit-card
issuers and merchants, and financial
regulators, such as Mark Carney, the
governor of the Bank of England.
In America Facebook’s Messenger app
already allows peer-to-peer transfers, but
only in existing currencies and between
accounts linked to bank-issued payment
cards. But the new blockchain-based
money would be a currency on its own.
Reasons abound why Facebook might
want to take this step. It has to pull even
with other big global apps that already
offer easy payment features, such as
WeChat in China. A digital coin would
work in developing countries, where
many people are unbanked and remit-
tances from abroad are large (India is
rumoured to be among the first countries
where it will be available). If it is used for
commerce, not just peer-to-peer pay-
ments, Facebook could take part of the
fee that now goes to card-issuers, and
charge more for ads, since buying the
products touted would be quicker and
simpler. It could move into services such
as tipping, for which other payment
systems are too pricey (at the Facebook
do Mr Zuckerberg demonstrated how
users could send content-creators some
digital change). Data on payments would
help make up for what the firm will lose
in its planned “pivot to privacy”, which
includes steps such as allowing users to
communicate on encrypted channels.
But despite the crypto-buzz, the new
currency is unlikely to be a close relative
of Bitcoin, says Lex Sokolin, a fintechanalyst—that is, a decentralised system
with no one in charge. Facebook will
want to be in control to gather data,
simplify administration and avoid the
currency being targeted by speculators
such as hedge funds. It will be a “stable-
coin”, backed by established currencies
such as the dollar to avoid the volatility
that has bedevilled Bitcoin (which is
heading back towards $9,000 after fall-
ing to little more than $3,000 last year).
Regulators, fearing money-laundering or
other criminal activity (as happens with
Bitcoin), will surely set strict rules, per-
haps capping transfers and policing their
flow across borders.
Facebook is well-placed to make a go
of the venture, according to Ben Thomp-
son of Stratechery, a widely read news-
letter on the tech industry. Its services
now boast a total of 2.4bn monthly users.
It could entice merchants with discounts
if they use the new coin to buy ads, and
users by paying them in it for viewing
those ads—or perhaps, which would be a
giant step for Facebook, even for provid-
ing data about themselves.
Yet it will not have the field to itself.
Similar coins already exist. Signal and
Telegram, two messaging apps, are also
planning digital cash. Moreover, pay-
ment cards are ubiquitous in the rich
world, and easy to use online. And then
there is the question of whether, for all
its reach, a FaceCoin would really be
welcome. Should a firm that has shown a
cavalier attitude towards users’ data be
trusted to deal with their money?FaceCoin
CryptocurrenciesSAN FRANCISCO
Facebook’s new currency may be based on a blockchain, but it is no Bitcoin