Freeing cement prices<\/p>\n
Indonesia's Minister of Trade Satrio B. Joedono revealed last
\nweek what we hope will eventually set a precedent for restoring
\nmarket forces in the prices of industrial products still subject
\nto government control. Joedono told newsmen that the domestic
\ncement prices, which rose steeply last year to far above the
\ngovernment-set local reference prices, need to be adjusted to
\ninternational market quotations. He saw the adjustment of
\ndomestic prices to the level of international ones as crucial for
\nencouraging new investments in the cement industry to cover the
\nwidening gap between supply and demand.<\/p>\n
We think that Joedono's argument is quite sensible. If the
\nbuilding material remains subject to a government-set price range
\nnew investors will always be discouraged from entering the
\nindustry because a government ruling is always rigid while market
\ndevelopments are fluid.<\/p>\n
Obviously, the most immediate impact of the price adjustment
\nwill be a rise in the cement prices from the price range mandated
\nby the government in 1993. But because the actual cement prices,
\nsince the second half of last year, have been way above the
\ngovernment-fixed price range and have in fact neared the
\ninternational market quotations, the net impact would be
\ninsignificant anyway. What the price adjustment will do is to
\nsimply legalize the prevailing prices. But the benefit of
\nremoving the price control is obvious: Relative price stability.<\/p>\n
Most countries have never experienced long-term shortages of
\nindustrial goods that are not subject to trade barriers. However,
\nsuch relative price stability will take place only if the removal
\nof the price control is coupled by the abolition of regulatory
\nrestrictions on cement imports and exports. Under such a
\nrelatively free market mechanism (without rigid price control)
\ndomestic producers will not have much latitude in raising their
\nprices to unreasonably high levels because imports will flow in
\nto correct any supply-demand imbalance. On the other hand, a
\ndomestic surplus will not cause a price collapse because the
\nproducers are free to sell on the international market.<\/p>\n
Under the present price control policy, the government has
\noften been forced to take contingency measures such as opening up
\nimports and imposing tax surcharges or quotas on exports whenever
\na domestic shortage occurs. But such measures are most often too
\nlate to generate the desired impact because of the time lag
\nbetween the introduction of the measure and the arrival of
\nimports. Moreover, such measures, however short term they may be,
\nare inconsistent with the government's pronounced objective of
\nsteadily enhancing free and open trade. They also damage the
\nreputation of domestic producers who have invested a great deal
\nin promoting exports. No wonder, such inconsistency has hindered
\nthe implementation of more than 12 new cement plant projects
\nalready licensed by the Investment Coordinating Board. And no
\nwonder the domestic cement market continues to be dominated by
\nthe Indocement group.<\/p>\n
It is not clear yet whether the government will free the
\ncement prices to the market forces by abolishing the mechanism of
\ndecreed price range or will instead maintain the present control
\nmechanism but at a higher price range (near the international
\nmarket quotations). But since the price control mechanism has
\noften failed, as can be seen in the annual increases in the
\ncement prices to levels far above the fixed price range, we don't
\nthink the government will maintain the price-control mechanism at
\nthe risk of being \"rebuked\" again by the market forces or by the
\ncement oligopolists.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/freeing-cement-prices-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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