A nation of smugglers

A nation of smugglers

The revelation by Kompas daily last week that cheap Indonesian
kerosene has been smuggled out of the country in large quantities
exposed a major flaw in the government's fuel subsidy system. A
subsidy by definition always creates market distortions, and when
the discrepancy between local and international prices becomes so
large, it encourages smuggling. In the case of kerosene, the
price differential must have become so tempting that profiteers
decided it was worth the risk to smuggle the commodity out of the
country.

So now we learn that poor Indonesians have not only been
subsidizing the rich under the government's fuel subsidy system,
but they have also been subsidizing Singaporeans, or whoever
became the end users of the smuggled Indonesian fuel.

As obscene as this revelation sounds to most people, somehow
it was not shocking enough to prompt the authorities to act.
Their response, or rather lack of response, confirms the widely
held notion that smuggling is a normal occurrence in this country
and is likely even tolerated. It strengthens the belief that many
smuggling operations have the approval or support of powerful
institutions, which also get their share of the cut.

It is nevertheless appalling to see that the authorities have
done almost nothing in the four days since Kompas published the
results of its investigation on Friday. In spite of the
meticulous details presented in the report, including photographs
and interviews with local residents, police say they have found
no evidence of smuggling in the northern Jakarta district of
Cilincing. Pertamina, the state oil and gas monopoly, has washed
its hands of the matter, saying that what its licensed private
distributors do with the kerosene is not its responsibility.

Is there a conspiracy among the various government agencies to
bury this report? Is there no chance that the Cilincing operation
is not the only one smuggling kerosene and other subsidized fuels
out of Indonesia? Since the profiteers in the Cilincing operation
have managed to evade the law, there is a likelihood that they
have moved their activities elsewhere or are laying low for a
while.

Perhaps because the country is an archipelago, modern
Indonesia is replete with stories of smuggling. Some of the
stories portray the smuggling as a heroic act and others as a
rewarding venture. Indonesia's independence struggle against the
Dutch in the late 1940s was partly financed by money from the
smuggling of various commodities, including marijuana. Former
president Soeharto was the target of a smuggling investigation
when he was in charge of Central Java's Diponegoro Military
Command in the 1950s. He was never fully cleared of the charges,
and yet he became Indonesia's second president, while his alleged
coconspirators became some of the country's top business leaders.

That the authorities have turned a blind eye to smuggling is
underpinned by the government's objection to the publication of
trade statistics between Indonesia and Singapore. Figures
compiled by Singapore, where the administration is most
meticulous, would include all goods arriving on its shores,
irrespective of their legal status from the country of origin.
The discrepancy between the trade figures collected by Jakarta
and Singapore is apparently so large that full disclosure would
greatly embarrass the Indonesian government.

Among the shipments that have not found their way into
Indonesia's official statistics in the past year are the
subsidized kerosene and other fuels; the crude palm oil which
disappeared from the local markets in spite of a government
export ban; and many other products whose prices have been
distorted thanks to official government policies. But
irrespective of the flaws in domestic policies, smuggling would
not flourish without official sanction.

The kerosene scam, however, has shown that smuggling is never
a win-win situation. Someone has to pay for the subsidy and that
obligation eventually falls on the nation, particularly the poor
who benefit the least under the subsidy scheme. Given the
immorality of this case, one wonders how long the nation can
afford to pretend that smuggling is not harmful.