Bulog in limbo after losing its monopoly

By Sylvia Gratia M. Nirang

JAKARTA (JP): For over 20 years enjoying exclusive rights to import and distribute basic commodities, the State Logistics Agency (Bulog) monopoly role came to an end this year as the country's economic crisis worsened.

In September, the government removed the agency's exclusive rights to import and distribute soybeans, wheat, sugar and cooking oil after first cutting subsidies on their prices in accordance with the terms of the reform programs agreed with the International Monetary Fund (IMF) in return for US$43 billion emergency funds to rescue the country's ailing economy.

General importers are now completely free to import these commodities and will be exempt from import duties.

The agency is now only in charge of importing rice -- the country's political tinder box -- and distribution of it throughout the country.

The agency has been singled out as a reform target by the IMF, due to its long-time notorious indulgence in collusive practices relating to the distribution of staple food.

Established in 1967, the agency was initially assigned only to provide rice to the Armed Forces and civil servants and as a buffer stock agency for rice. Later, its role became larger when it was assigned to handle wheat flour, sugar, soybeans, and cooking oil also. When there is scarcity in the market, it will release part of its stock to curb price increases.

In harvest time when the country has an abundant supply the agency would buy staples from farmers to protect them from sharp drop in prices.

Long associated with corruption, Bulog was often held up as the prime example of all that was bad about Indonesia under former president Soeharto.

In the past it awarded lucrative import and distribution contracts to business groups controlled by Soeharto's children such as his daughters Siti Hediati Prabowo (Titi) and Siti Hutami Endang Adiningsih (Mamiek) and his close friend tycoon Liem Sioe Liong or Sudono Salim, who founded and controlled the giant Salim Group.

Salim Group, through four companies, was awarded contracts to import 1.27 million tons worth $657,474, Siti Hutami through her All Resources was awarded a $90,318 contract to import 300,000 tons while her sister Titi through Data Nilam Latipson obtained a $29,920 contract to import 35,000 tons of rice.

Beddu Amang, Bulog's chairman during the period, said that the contracts were awarded without open tender because imports had to be effected in a "silent" operation, a discreet import deal made by Bulog in order to prevent price increases in international markets. But critics said that this silent operation was quite effective in covering up business collusion and other forms of corruption.

A major change was made early this year when Beddu introduced massive reforms such as by inviting international tenders for the purchase of sugar, wheat and soybeans.

Bulog's first open wheat tender in August attracted huge international interest and saw the country return to buying U.S. wheat. Bulog's international sugar tenders have also attracted large foreign interest.

Just when Bulog was being praised for operating multi-million dollar open tenders for the purchase of food commodities, in late August, the government replaced Beddu -- long-time Bulog insider and its chairman for the past three years -- with trade and industry minister Rahardi Ramelan.

The government did not explain the move, although sources said Beddu's ouster came partly because he is perceived as being linked with the corrupt Bulog of the past, but more likely because his moves to open up food purchases to international tender stepped on the wrong ministerial toes.

In any case, whatever behind the scenes political wrangling may be going on, the Bulog development comes at a time when Indonesia is in dire need of correction in its food distribution channels.

As Indonesia grapples with its worst ever economic crisis, increases in prices for essential commodities -- particularly rice -- are highly sensitive.

In the September-October period, prices surged to over Rp 3,000 per kilogram for low quality rice and over Rp 4,000 for high quality rice, more than double the normal levels of Rp 1,000 and Rp 2,500.

Beddu's successor Rahardi began his moves by organizing what he called competitive bidding in appointing rice importers. He picked eight out of 150 bidders to import 526,000 tons of rice.

But Rahardi's tender system was criticized as too slow and complicated.

As of Dec. 1, Indonesia has secured import contracts and aid commitments for 3.49 million tons rice, or about 80 percent of the 4.5 million tons which will be procured by the government from overseas markets this fiscal year, which ends in March.

In November, the government announced its plan to establish a new agency to replace Bulog in another bid to improve the distribution of staple food items in the country.

The plan was lambasted by analysts, who said that during the economic crisis abolishing Bulog would cause disruption in the distribution of rice and would further cause severe suffering for the nation's poor.

The Center for Agriculture Policy Studies' executive director, H.S. Dillon, said that replacing Bulog with a new agency could be an ill-timed decision because almost 80 million of the country's population were suffering an income shock and did not have the purchasing power to procure rice.

"Rather than establish a new agency, the government should focus on creating an effective distribution system for rice, which would ensure supplies reaching the very poor," he said.

Legislator Umbu Mehang Kunda, who chairs House Commission III for agriculture, forestry, transmigration and food affairs, said the government abolition of Bulog would cause deadlock in buffer stock activities because a new agency would take time to function well.

Economist Didik J. Rachbini from the Institute for Development of Economics and Finance said that a food authority agency such as Bulog was still necessary in every country to ensure price stability of staples.