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)