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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

How to Grow A Market

Removing controls on wheat is a big step


NEVER UNDERESTIMATE THE IMPORTANCE of rice in Indonesia. Would-be politicians learn at an early age the first and most important question in assessing any crisis: "Is there enough rice?" Given that, it is understandable that the group of farm products soon to be released from Indonesian state control as part of a deal with the International Monetary Fund in exchange for $33 billion in aid does not include rice.

Nevertheless, it is a start. Jakarta says that it will relinquish control over the importation of three agricultural

products: wheat, garlic and soybeans. Initially, import tariffs of 10% on wheat and 20% on garlic and soybeans will be imposed to protect farmers; the tariffs are to drop to 5% in the year 2003. Manmindar Singh, an economist with Nomura Securities in Singapore, says the compromise by Jakarta represents a "politically bold move that shows [government leaders] realize the seriousness of the problem and are willing to bite the bullet."

Critics have long insisted that Indonesia's complex system of special concessions and monopolies surrounding a wide range of consumer, industrial and agricultural products both encourages corruption and hampers economic growth. Until recently, Indonesia's growth has been healthy, thank you, and critics, including the World Bank, were forced to concede that corruption might be slowing the tiger but had not come close to stopping it.

The Asian currency crisis of the last four months has changed all that. The big loser in the new IMF arrangement is the State Logistics Agency, or Bulog. Bulog has traditionally controlled the imports of farm products ranging from wheat to sugar to shallots. It was set up in 1967 shortly after President Suharto gained power. Over the years, the agency's clout as a corporate kingmaker has grown. By dishing out monopoly concessions on commodities, it has the power to make or break growers, processors and traders.

As for consumers, Indonesians seem to pay more for commodities than their Southeast Asian neighbors. Rice, for example, costs 36 cents and 38 cents per 1 kg bag in Kuala Lumpur and Bangkok, respectively. In Jakarta, the price is 43 cents. The story is similar for sugar. One kilogram sells for 36 cents in Bangkok and 37 cents in Kuala Lumpur. The Jakarta price is 53 cents.

One of the prime beneficiaries of Bulog's monopoly has been the Salim Group, which owns Indofood and Bogasari Flour Mills, an Indofood subsidiary. Although Bulog's books are mostly hidden from public scrutiny, rumors abound that Bulag sells wheat for less than $170 a ton, below the world market price of $180 a ton. By far the biggest buyer of the agency's wheat is Bogasari.

Of course, with the end of Bulog's monopoly, that practice should soon be in the past. But that doesn't satisfy all of Bulog's opponents: "Bulog is a festering wound in Indonesia's economy," says Amien Rais, an outspoken critic of corruption in Indonesia. Christianto Wibisono, a business consultant in Jakarta, is more reasoned: "The purpose of Bulog is to protect the farmers." The problem, he says, is that "the farmers are still poor. Only Bulog and the businessmen are getting stronger."

-- Reported by Yenni Kwok / Jakarta


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