Bulog in limbo after losing its monopoly

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.