Coping with shortage
Coping with shortage
The government deserves highly appreciative applause for its
determination to resist strong demands from various groups to
slap surcharges on the export of several industrial products
whose prices have increased in recent weeks.
It is encouraging to observe that the government, notably the
ministries of industry, trade and finance, did not resort to ad
hoc measures to cope with the price rises. That would have
damaged the business climate in general.
The government has remained rational even though reactions to
the steady rise in the price of newsprint since last year and the
price of several textiles over the last few weeks were often
highly emotional. We believe the reaction of various groups,
sometimes strengthened by street demonstrations by small bands of
protesters, were out of proportion. We think the allegations of
cartel-like or oligopolistic practices are an over reaction as
far as newsprint, yarn and rayon are concerned.
Had the government yielded to the noisy protests and resorted
to such improvised measures as slapping surcharges or other non-
tariff barriers on exports, the impact would have been much more
damaging than the short-term benefits to the domestic users.
Industry Minister Tunky Ariwibowo should be commended for his
decision, taken in May after a thorough investigation of the
newsprint industry, to let market forces determine newsprint
prices. That attitude not only reflects consistency in government
policy but has exposed the domestic industry to foreign
competition by lifting the newsprint tariff. Had the government
forced newsprint producers to stop exports or had it imposed
surcharges on newsprint exports, no new investors would be
interested in entering the industry and the domestic supply
capacity would remain very tight.
The government also deserves high commendation for its firm
stand against strong demands from House members and several
Indonesian Textile Association executives to force yarn and rayon
producers to sell at fixed prices. We were afraid that the
government would succumb to demands for ad hoc, anti-market
measures, especially after a delegation of small textile
companies from West and Central Java brought their plight to the
House. After all, the public's reaction tends to be emotional
when the complainants are small firms or poor people,
irrespective of the validity of their complaints.
Similar to the phenomenon in the worldwide newsprint market,
the prices of rayon and synthetic yarn have also risen. Domestic
producers should obviously follow international market
developments. As Marimutu Sinivasan, the chairman of Texmaco --
one of Indonesia's largest integrated textile groups -- asserted
after meeting President Soeharto last week "there was nothing
abnormal in the price rises in Indonesia. The price increase was
simply normal because the prices of dissolving pulp (basic
material for rayon) and paraxylene (material for polyester) have
also been on the rise."
President Soeharto's reaction to Sinivasan's explanations was
also very rational. Instead of asking domestic producers to lower
prices, the President called for the expansion of pulp and
polyester fiber dissolving capacities and for soft-term financing
of input procurements by small firms.
The President's response, we think, will further strengthen
investor confidence in the government's macroeconomic policy
because it clearly signals that as long as market forces function
properly the government will not intervene.