Wed, 19 Apr 2000

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.