Agriculture budget 'too small'

Agriculture budget 'too small'

JAKARTA (JP): The massive cut in the allotment for the
agricultural sector in the 1999/2000 State Budget reflects the
government's ignorance in identifying and taking advantage of the
country's most promising sector, analysts have said.

They added the allotment was too small to encourage
agricultural activities.

The executive director of the Center for Agricultural Policy
Studies, H.S Dillon, said on Wednesday that agriculture, as the
only sector able to weather the crisis through recording positive
growth, should have topped the list of the government's
development agenda.

"The low budget given to the agricultural sector shows an
apparent indication that Habibie's government has failed to
recognize, identify and take advantage of the country's most
promising sector," he said during a discussion held by
Indonesian Forum.

In the budget draft unveiled early this month by President
B.J. Habibie, Rp 4.6 trillion (US$575 million) is allocated for
agriculture. It is 40 percent lower than the Rp 7.4 trillion in
the 1998/1999 fiscal year ending in March.

About Rp 4.4 trillion of the budget is earmarked for the
Ministry of Agriculture, with the remainder for the Ministry of
Forestry and Plantations.

Dillon believed at least Rp 8.1 trillion should have been
allocated.

Bungaran Saragih of the Bogor Institute of Agriculture said
only agriculture recorded positive growth during the country's
worst economic crisis in decades.

He said that during the 1997/1998 fiscal year, agribusiness
recorded 2.2 percent growth as other sectors plunged into
negative territory.

"The budget draft clearly shows the government still puts its
priority in the banking sector by allocating Rp 18 trillion for
the bank recapitalization program, while neglecting other sectors
which have greater potential to lift the country out of the
economic crisis."

Dibyo Prabowo of the Center on Asia Pacific Studies at
Yogyakarta's Gadjah Mada University said the tight budget would
render it even more difficult for farmers to enhance market
infrastructure, provide better trade and processing services and
enhance the quality of rural credit.

The three analysts said most of the government's policies in
the agricultural sector remain counter-productive.

Bungaran said the government policy on imposing a high export
tax on CPO resulted in a 70 percent drop in its export value last
year.

He said the government would earn at least $2.5 billion from
CPO exports in this year if it liberalized the trade.

The export value of CPO during 1998 only reached US$420
million, compared to $1.5 billion in the same period of 1997, he
said.

"The government should promote the export of commodities which
have the potential to be large foreign exchange earners to help
the country out of the economic crisis. The CPO industry falls
into that category and any increase in exports would also be of
benefit to smallholder farmers," Bungaran said.

Dibyo said government intervention to stabilize cooking oil
prices had not only been ineffective, but had also caused trading
in the commodity to become uncertain.

"Inconsistency in government regulations covering trade in
CPO and cooking oil will kill the business in the long term
because the international market will come to view involvement
with Indonesian palm oil producers as fraught with risk and
uncertainty," he said.

Dibyo said that many international buyers have turned to
Malaysia for CPO because dealing with the neighboring country
posed less risk than if they buy the CPO from Indonesia.

He said the high export tax had discouraged CPO producers from
exporting and caused the total supply of the commodity to flood
the local market, especially after the rise in the rupiah's value
to between Rp 7,500 and Rp 10,000 to the greenback in September.

"The export tax should be cut to reach as minimum as possible
level," he said.

Dillon said the high export taxes on CPO and its byproducts
had halved the incomes of oil palm farmers as prices for the oil
palm kernels had sharply dropped.

"The high export tax has adversely affected the welfare of
smallholder oil palm farmers and helped the urban consumers,
those who are already rich," Dillon said.

The government currently impose a 60 percent tax on CPO.
Earlier this month, it said the tax would be slashed to 40
percent next month. (gis)