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.