Circumventing reform

The government has repeatedly claimed, in defense of its plan to introduce a currency board system, that the IMF-brokered rescue package signed by President Soeharto on Jan. 15, has failed to stabilize the rupiah-U.S. dollar exchange rate.

But has the government executed the reforms to which it is now committed in a firm and consistent manner? The answer, after scrutinizing the 50 points of reform contained in the IMF agreement, is a resounding no.

It must be acknowledged that the government has swallowed the bitter medicine of reform, as prescribed, on a number of occasions. However, at other times, reforms have been half- heartedly executed. Market distortions have been abolished, only to reappear under a different guise, undermining attempts to reinvigorate public confidence in the government and the economy.

Inevitably, dismantling decades of financial excess, market distortions, lucrative trading monopolies and rent-seeking practices will encounter strong resistance from politically powerful vested interests. But banishing these demons is necessary if our high-cost economy is to be transformed into an efficient and competitive entity, strong enough to withstand exogenous shocks.

The plywood export cartel and sugar, wheatflour and clove monopolies had to be disbanded by February, in line with commitments made to the IMF. Non-tariff barriers to the export of agricultural products such as crude palm oil and its derivatives must be removed by April.

The Indonesian Wood Panel Association (Apkindo) abolished an export quota system and relinquished the cartel-like stranglehold which it held on the plywood industry, leaving producers free to deal directly with overseas buyers. However, these reforms were surreptitiously followed by a new ruling which obliges exporters to pay a bond of Rp 50,000 to Apkindo for every cubic meter of plywood exported. A second directive on the shipment of plywood, has also been issued. Both amount to cartel-like practices.

The export bond, Apkindo stated, is to ensure that plywood producers submit detailed export reports to the association. Apkindo is a private organization and is not legally entitled to impose this compulsory reporting, yet no industry or trade officials have dared to challenge the new system. The terrifying message which this sends out is that despite Indonesia's commitment to reform, well connected businesspeople will continue to get their way. Reforms may come but crony capitalism is here to stay.

The National Logistics Agency will soon relinquish the monopolies which it holds on the distribution of sugar and wheatflour. However, its chairman, Beddu Amang, recently confirmed that the agency will have a continued involvement in the distribution of these staple goods.

A foundation of the agency's employees, backed by investors, are developing a new private trading company, a move which has caused consternation among businesspeople planning to enter the sugar and wheatflour markets. They now fear that vested interests will continue to be favored in this sector.

Palm oil producers have also been cast into uncertainty. The industry and trade ministry has hinted that an export ban on palm oil may persist beyond April. Trade officials must realize that in order to begin exporting in April, producers must immediately begin to negotiate deals with overseas buyers and arrange shipping contracts. But this cannot take place amid the uncertainty caused by these official hints. The industry, in which Indonesia holds a distinct comparative advantage over competitors, is being undermined as a consequence.

A reprieve granted to the clove trading monopoly (BPPC) on Monday has left clove producers facing similar doubts to the plywood and palm oil producers. Minister of Cooperatives and Small Enterprises Subiyakto Tjakrawerdaya stated, after meeting President Soeharto, that the BPPC would continue trading through a new 'partnership' with producer cooperatives and the clove cigarette industry. Despite the minister's hasty assurance that farmers, cooperatives and cigarette manufacturers will be free to buy and sell cloves unilaterally, nobody missed the message which came out of his meeting with the President. It is unlikely that any of the government-dominated clove producing cooperatives or cigarette makers will dare to shun the planned partnership, given the powerful political connections of the BPPC controlling shareholders.

The IMF review team which arrived yesterday should closely scrutinize these breaches of the agreement, along with other inconsistencies in the implementation of reforms. The IMF should act firmly to bring an end to them because it is not only the future of the Indonesian economy which is at stake. The reputation and resources of the IMF are also on the line.