Cocoa plays two major roles in the Indonesian economy, providing important export earnings and a source of employment for millions of rural smallholders. This research uses an Econometric Model to analyse the factors responsible for the Indonesian cocoa demand and to assess the impact of oil prices and interest rate policies on cocoa exports and production. It uses data from 1983 to 2002 and divides the cocoa production regions into four provinces: South Sulawesi, West Sulawesi, Central Sulawesi and East Java. The findings reveals that Indonesian cocoa demand is influenced by the country's cocoa price, wages in the industrial sector, per capita income, oil prices and lag cocoa demand. The research shows that increasing oil prices in Indonesia have had a negative impact on cocoa exports and production. However, it also indicates that government policies leading to a decline in interest rates could be expected to increase export and production. While this may not be economically feasible for the country as a whole, the authors suggest that providing cocoa smallholders with subsidies on oil prices and interest rates offers the best solution to increasing Indonesian cocoa exports and production.

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