INTRODUCTION TO INTERNATIONAL ECONOMICS

ECONOMICS INTERNATIONAL POLICY

Group 5

Member of Group:

 Kadek Sri Mirah Yusita Putri (2207511020)

 Ning Ai Satyawati (2207511046)
 I Gusti Ayu Kade Susi Nova Sriani (2207511118)
 I Dewa Ayu Widya Pradnyawati (2207511024)
 Kadek Dwi Agestiari (2207511014)

Lecture : Anak Agung Bagus Putu Widanta, SE., MSi

Faculty of Economics and Business

Introduction to International Economic 2022/2023

Udayana University

2023
 INTRODUCTION

The international economy includes several aspects, both micro aspects as

well as macro aspects. The micro aspect, for example, concerns the issue of buying
and selling international (export-import), where this trading activity depending on the
state of the market for production and the market for the factors of production, also
includes foreign investment transactions, international transactions unilateral and
balance of payments. While the macro aspect Economics, for example, concerns the
problem where each market is mutually exclusive related to each other that can affect
income or job opportunities. Some facts in international economic relations, among
others is the relationship of export-import of goods, the exchange rate of several
foreign currencies (currency) and several types of services that emerge as a means of
contact international. These facts in themselves raise important questions for the
countries involved in it. International economic problems can be said to arise after the
war first world. After the end of the first world war many countries reduce the
number of imports on the grounds of reducing unemployment and protecting the
domestic industry that grew afterward. As a result of such a severe decline in
imports, the volume International trade has decreased compared to before it happened
great war, and the depression spread. After 1993 volumes International trade is
increasing again, although not as high as in previous years. Implementation of
international economic activities can occur in form of cooperation, helping to help
between one country and another.
1.1 The Definition of International Economics Policy

International economic policy in a broad sense international economic policy

is government economic action/policy. Which directly or indirectly affect the
composition, direction and form of international trade and payments. This policy is
not only in the form of quota tariffs and so on, but also includes domestic government
policies that indirectly have an influence on international trade and payments such as
fiscal and monetary policies. In a narrow sense, international economic policies are
government economic actions/policies that directly affect international trade and
payments.

1.2 Goals of International Economic Policy

International economic policy is an action/policy. Economic policy, which

directly or indirectly affect the composition, direction and form of international trade
and payments. International economic policy maintains a balanced of trade.
International economic policy is:

A. Autarchy

This goal is contrary to the principle of international trade. The goal of autarchy is to
avoid the influence of other countries, whether economic, political, or military.

B. National welfare

This goal is contrary to the goal of autarchy. By conducting. international trade, a

country will benefit from specialization. To encourage international trade, barriers to
international trade (tariffs, quotas, etc.) are removed or at least reduced. This means
that there must be free trade.

C. Protection

This objective is to protect national industries from competition from imported goods.
This can be done through tariffs, quotas etc.

D. Balance of balance of payments

If a country has excess foreign exchange reserves, then the government policy to
stabilize the domestic economy, not cause many problems in its international balance
of payments. But very few countries have such a position, especially developing
countries. position, the position of foreign exchange reserves is weak, forcing the
governments of these countries to take international economic policies to stabilize
their international balance of payments. To take international economic policies to
balance their international balance of payments. This policy generally takes the form
of exchange control. Foreign exchange controls not only regulate/supervise the traffic
of goods, but also, capital.
E. Economic development

To achieve this goal, the government can take policies by way:

a. Protection of domestic industries (infant industries)

b. Encouraging exports and reducing imports.

c. Increase national income.

1.3 Exchange Control (EC)

Exchange Control is a form of government intervention in the international

economic field, where the government monopolizes all foreign economic
transactions. all foreign economic transactions. In this EC system, all foreign
exchange monopolized by the government in the sense that all foreign means of
payment owned or obtained by all residents in the country. owned or obtained by the
entire population in the country must be submitted to the government, and the
government must be handed over to the government, and it is the government that
regulates and determines the use of foreign
exchange.

For example, in the form of foreign exchange

rates (bills of exchange rates). Both the selling
and buying rates of bills of exchange are
determined by the government and buying
rates are determined by the government
unilaterally. The main objective of the EC system is to limit the demand for foreign
exchange by means of coercion, within the limits of reasonable supply. Because
freely, the supply at that time cannot meet the demand so that the exchange rate
becomes stable. To meet the demand that exceeds supply, EC can be seen as a
technique to mobilize and allocate foreign exchange that is relatively scarce.
Therefore, demand must be regulated, for example by an import license system. The
determination of the bill rate in the EC system can be simplified as shown in Figure
8.

Determination of the exchange rate in the EC system Figure 8 explains that in

a free market, the foreign exchange rate is IDR 895. That occurs is IDR 895, -. At this
rate, demand = supply, i.e., 0b, but because the supply cannot meet the demand (the
main reason for the EC system), the government sets the exchange rate at IDR 895.
the main reason for the EC), the government sets the exchange rate, i.e., £1=850.

Goals of EC
 The main objective of the EC is to balance the demand and supply of
exchange. supply of existing currencies, besides that the EC also has several other
objectives other objectives, namely:

1. Prevent Capital Flight

When the domestic economic situation experiences shocks that are unfavorable, many
investors try to leave the country. so that it is unfavorable, then many investors are
trying to save their investment and capital abroad which is more profitable. more
favorable. This capital flight is called capital flight. If this is left unchecked, it will
lead to balance of payment difficulties in the country.

2. Maintaining Overvalued Currencies

This objective after World War II was the most important objective of the EC.
of the EC. A currency could be maintained at an overvalued level through EC policy.
The overvalued level of an exchange is maintained by dividing the currency amongst
its various demands and There may also be some demand that cannot be met so that
the total demand is limited to so that the total demand is limited to the available
supply of foreign exchange, even though the prevailing exchange rate shows that the
national currency is overvalued. Overvalued is maintained because the country has
chosen the EC for improvement of its balance of payments over other alternatives
such that at a given rate, the demand for the currency will exceed its supply. supply.
In this situation there are 3 ways of improvement, namely:

a. Deflator action with monetary policy and or fiscal policy. Action This action will
reduce the demand for foreign exchange and increase its demand, so that there is a
new equilibrium level.

b. The bill rate may be depreciated in accordance with free market conditions to a
new equilibrium level. to the new equilibrium level.

c. The government uses the EC to limit the demand for foreign exchange, so that the
exchange rate can be maintained, and there is no need for deflation. Deflation is
sometimes a bitter pill, while depreciation is often opposed for various reasons,
including opposed for various reasons, including the following:

a. Deterioration of the terms of trade.

b. Leads to inflation.

c. Increase the cost of servicing and repaying foreign debts.

3. Protecting domestic programs EC policy can also be used as an anti-deflationary

policy.

Policy can also be used as a policy that is anti-deflator, this is because with the
EC all transactions which results in an increased demand for foreign exchange can be
controlled. controlled. Reduction of imports by the EC means the elimination of a
source of leakage in the income stream and prevents undesirable pressures due to
thein the income stream and preventing undesirable pressures due to the decline in
international reserves. The EC will isolate economic activity thus enabling
implementation of the anti-deflationary program, with no need to worry that its
market would be invaded by cheaper imported goods. For this reason, EC was also
used as a weapon to implement the idea of national economic planning idea.

4. Monitoring trade

In the implementation of foreign exchange distribution, provisions are generally

made, among others:

a. For what purpose the foreign exchange can be given.

b. At what exchange rate is the foreign exchange given.

c. Who may and can be given foreign exchange.

d. In which countries should import purchases be made.

To these questions, the general answers are as follows. The following:

a. No foreign exchange is usually granted for capital exports.

b. For essential goods, it is generally granted at a relatively low exchange rate.

c. For semi-luxury and luxury goods, foreign exchange is granted at a high exchange
rate, even for free list goods, in addition to free list goods at a high rate, even for free
list items, in addition to the high exchange rates are sometimes still subject to
additional import levies. import levies.

1.4 Why International Economics Policy is Important?

The emergence of this international trade policy is due to the expansion of

trade relations international relations between countries that can kill new or
developing domestic industries growing. Therefore, international trade policies
adopted by each country different. There are countries that adhere to free trade
policies (free trade), there are also those who adhere to protectionist trade policies
(protection).

The following is an explanation of trade policy the international:

a) Free Trade Policy

Free trade policy is a trade policy want freedom in trade, so no obstacles that
hinder the flow of products to and from abroad. Policy free trade develops
guided by the teachings of the flow classical (liberal) which does not want any
obstacles (obstacles) in the flow of international trade.
 b) Protectionist trade policies

Protectionist trade policies are policies trade that protects the domestic industry
in a way create various obstacles (obstacles) that block the flow products from
and to abroad.

1.3 International Economics Policy Instrument

International economic policy instruments include:

1. International trade policies include government actions/policies against foreign

trade, especially regarding the export and import of goods/services, for example
imposition of tariffs on imported goods, bilateral, trade agreements, imposition of
import quotas and export, etc.

2. International payment policy includes government action on payments

international, for example monitoring of foreign exchange flows, regulation of
capital flows long-term.

3. Foreign aid policy is government action related to aid (grants), loans/debt (loans),
assistance for rehabilitation and development, etc.

1.5 Tools of Economics International Policy

1.5.1 International Trade Policy Tools, including:

1. Tariffs

Tariff is a kind of tax levied on imported goods. Specific tariffs (Specific Tariffs)
imposed as a fixed charge on units of imported goods. For example, $6 for each
barrel of oil). Trifold Valorem (ad Valorem Tariffs) are taxes levied based on a certain
proportion of the value of imported goods (e.g., a 25 percent tariff on imported cars).
In both cases, the impact of tariffs will increase the cost of shipping goods to a
country.

2. Export subsidies

Export subsidies are payments of a certain amount to companies or individuals who

sell goods abroad, such as tariffs, export subsidies can be specific (a certain value per
unit of goods) or Od Valorem (a percentage of the value exported). If the government
provides export subsidies, the sender will export, the sender will export goods to the
limit where the difference between domestic prices and foreign prices equals the
value of the subsidy. The impact of export subsidies is to increase prices in exporting
countries while in importing countries prices fall.

3. Import Restrictions
Import restrictions (Import Quota) are direct restrictions on the number of goods that
may be imported. These restrictions are usually enforced by granting licenses to some
group of individuals or companies. For example, the United States restricts cheese
imports. Only certain trading companies are allowed to import cheese, each of which
is allotted to import a certain amount each year, not exceeding a set maximum
amount. The amount of quota for each company is based on the amount of cheese
imported in previous years.

4. Voluntary Export Restraints

Another form of import restriction is voluntary export restraint (Voluntary Export

Restraint), which is also known as a voluntary control agreement (Voluntary Restraint
Agreement=ERA). A VER is a restriction (quota0) on trade imposed by the exporting
and non-importing country. VERs have political and legal advantages that have made
them the preferred trade policy tool in recent years. From an economic point of view,
however, voluntary export controls are exactly same as import quota where license is
granted to foreign government and therefore very expensive for importing country
VER is always more expensive for importing country compared to tariff which
restricts imports by the same amount difference what is the revenue of government in
tariff becomes (rent) which obtained by foreign parties in VER, so that VER actually
results in losses.

5. Local Content Requirements

Local content requirements are arrangements requiring that certain parts of physical
units, such as the US oil import quotas in the 1960s. In other cases, the terms are set
in value, which requires a certain minimum share in the price of the good to originate
domestic value added. Local content requirements have been used extensively by
developing countries that are seeking to shift their manufacturing base from
assembling to processing intermediate goods. In the United States a draft local
content law for motor vehicles was proposed in 1982 but has not yet been enacted.

6. Export Credit Subsidies

This export credit subsidy is a kind of export subsidy, it's just that it takes the form of
subsidized loans to buyers. The United States, like most countries, has a government
agency, the export-import bank (Export-import bank) which is geared to at least
provide subsidized loans to help exports.

7. Government Control (National Procurement)

Purchases by the government or highly regulated companies can be directed at

domestically produced goods even if those goods are more expensive than imported
ones. A classic example is the European telecommunications industry. European
countries are basically free to trade with each other. However, the main buyers of
telecommunications equipment are the telephone companies and in Europe these
companies are until now government owned, domestic suppliers even if these
suppliers charge higher prices than other suppliers. The result is that there is little
trade in communications equipment in Europe.

8. Bureaucratic Barriers (Red Tape Barriers)

Sometimes governments want to restrict imports without doing so formally.

Fortunately or unfortunately, it's so easy to entangle health, safety, and customs
procedures standards in such a way that they become trade barriers. A classic example
is the French Government Decree 1982 which required all videocassette recorders to
pass through the tiny customs office at Poitiers effectively limiting realization to a
relatively small number.

1.5.2 International Payment Instruments

The international payment instruments include:

1. Letter Of Credit

Letter of credit (L/C) is a letter issued by a bank in the country of the party importing
goods (importer) where the bank concerned approves and pays for the money order
drawn by the seller of goods (exporter). Today more than 50% of international
payment methods use L/C. This is because this L/C payment method has several
conveniences, including the following:

1. There is certainty of payment for exporters

2. There is a guarantee of receipt of goods for importers

3. There is a credit facility for exporters or importers to make repairs

4. The existence of a hedging facility, namely the certainty that there will be no
change in the price of goods during the transaction process

2. Advance Payment (Cash Payment)

Advance payment is a method of international payment where the importer pays the
price of the goods before the goods are received. Advance payment is a method of
payment in advance. The method of payment of Advance payment is very risky for
the buyer (importer) because the exporter may not fulfill his obligation to deliver the
goods. Therefore, the business contract that underlies this business transaction must
be strengthened by various clauses that can guarantee the interests of the buyer, for
example clauses regarding compensation or sanctions.

3. Open Account

The payment method with an open account is the opposite of an advance payment. In
the open account payment method, the goods have been sent by the seller on behalf of
the buyer. Payment with an open account is very profitable for the buyer because the
goods are received before payment is made.

4. Commercial Bills Of Exchange

Commercial bills of exchange, commonly known as money orders (drafts) or trade

bills, are letters written by the seller (exporter) containing an order to the buyer to pay
a sum of money on a future due date.

5. Collections

The collection method is a way in which the exporter assigns the collection of the
price of the goods he exports to one of the banks.

6. Consignment

The consignment method is actually another form of open account. Only open
accounts and consignments differ in terms of implementation. In an open account, the
exporter has sent goods to the importer before payment occurs, conversely, in
consignment, the exporter has sent goods before payment and payment is received
after the goods are sold by the importer.
 CONCLUSION

International economic policy in a broad sense international economic policy

is government economic action/policy. In a narrow sense, international economic
policies are government economic actions/policies that directly affect international
trade and payments.

A policy plays a very important role in economic activity, both nationally and
internationally. Policy means to regulate. On a global scale, international trade cannot
be separated from policies that include market expansion, both in exports and how
economic policy when deciding to import. This paper has explained the meaning of
policy instruments and the objectives of international economic policy. Among the
objectives of international economic policy are autarky, protection, welfare, and
balance of payments. This paper also explains how export-import policies work and
why they need to be implemented. Explains tariff and non-tariff policies and other
economic policies.

The emergence of this international trade policy is due to the expansion of

trade relations international relations between countries that can kill new or
developing domestic industries growing. Therefore, international trade policies
adopted by each country different.

International economic policy instruments include: international trade

policies, international payment policy, foreign aid policy.

Tools of economics international policy divided by two, there are international

trade policy tools and international payment instruments.
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