Credit scheme for farmers saved RI from bankruptcy

Credit scheme for farmers saved RI from bankruptcy

Indonesia has a long history of trying to help farmers through
various credit schemes, yet President Abdurrahman Wahid recently
remarked about the need to study a microcredit scheme operated by
Bank Grameen in Bangladesh. This remark came on top of the
government's decision to pardon the unpaid debts of millions of
farmers. Adi Sasono, who during his short tenure as president
B.J. Habibie's minister of cooperatives provided farmers
increased access to credits, discussed the issue with The Jakarta
Post. The following is an excerpt:

Question: What is your comment about the government's plan to
restructure the farmers credit scheme?

Answer: That is not a policy that will help farmers. There are
two reasons why. The first is that we require farmers to stay
within the confines of a system -- when they borrow money, they
have to pay it back. They should not be pardoned just like that,
because farmers would then think it is all right for them to
renege on their obligations.

Second, there have always been farmers who intentionally balk
at repaying loans. (Restructuring their debt) is not a healthy
solution to deal with these kind of farmers.

Third, this policy is unfair, especially for those who have
already repaid their debts. Restructuring the debts of farmers is
clearly not the solution the farmers need.

What do you suggest?

First, the government must take sides with the farmers by
purchasing their crops every harvest. During the Habibie
administration, the government bought farmers' harvests to
stabilize the floor price.

The new government -- out of ignorance of the real problem,
maybe --- has failed to purchase the crops. Consequently, farmers
saw prices drop sharply. This is the core of the problem.

Second, the government needs to provide affordable credits
instead of commercial ones, because 60 percent of our farmers do
not own the land they work on. They cannot be expected to afford
the commercial credits.

In addition, to prevent irregularities the government should
guide the farmers by introducing technology and management
assistance as part of the supervision against bureaucrats and
cooperatives. That is because many (bureaucrats and cooperatives)
are actually "naughty".

During Habibie's administration, (students from) 52
universities provided assistance and supervision. Certainly there
were irregularities because we were managing six million farmers
who had received credits -- but only 7 percent of them failed to
repay their debts, while bad debts among conglomerates reached 65
percent.

Why has the current government failed to take such an
approach?

This is about taking sides. (It is the state's duty) to help
the weak in ways that they can understand. The government should
not impose all those complicated banking procedures on the "small
people" who are only elementary school graduates.

It is the banks that should adjust themselves to the people's
needs. If credits were commercial and collateral was demanded,
then the poor would not benefit from the government's policies
(on lending).

Prior (to President Abdurrahman Wahid's administration),
farmers managed to increase output to 52 million tons from 48
million tons. Because floor prices were protected, the farmers
earned extra income -- and this stimulated consumption, which in
turn stimulated production. A whole running economic activity was
generated.

That is why inflation (under Habibie) came under control. The
rupiah, which at one point dropped to 17,000 against the US
dollar, lifted to 6,300. The rate of poverty, too, dropped from
39.1 percent to 14 percent.

This data shows the success of our credit program. Granted
there were always errant debtors; 7 percent of the six million
who received credits. Which is why I believe that all errant
debtors -- be they small-scale credit-recipients or major debtors
-- must be sanctioned.

Unfortunately, this administration has not been effective
because of inconsistent policies ... that is why we have farmers
suffering from declining prices, which was exacerbated because
the government imported rice during the harvest.

I am afraid this will lead to more poverty and higher crime
rates, because farmers who lost their jobs have moved to the
cities and do not have employment. The campaign to overcome all
these problems is more costly than it would have been had we
persuaded these farmers to remain in their villages by providing
them with an affordable credit program.

Some people are afraid the latest policy on farming credits
has demoralized farmers. What do you think?

We all share the belief in the importance of good corporate
governance, in that all business activities must be executed in a
transparent, accountable manner regardless of who the players
are. If the small players are not used to doing honest business
in ways suitable to a market-driven economy, but are instead
spoiled by government facilities -- and now their bad debts are
being pardoned -- how will they compete in the free market?

When the foreign players come in, we will all be (like)
Aborigines. We will be sidelined.

There is something to be said about the new economic concept,
where the small businesses are placed in the economic mainstream.
That means we have to enter the modern, global economy. We have
to build solid bases for economic management, introduce
technology, foster innovation and creativity, so we will be able
to compete globally.

The first step is strengthening the collective institution of
small businesses through cooperatives. We now have some 90,000
cooperatives -- only 10 percent of them receive state funds,
while the rest survive on their own. The banks should be able to
serve them.

So, the core (of my concept) is collectivity, because there is
no way we can handle all of the 40 million small businesses
individually. That is why we need healthy cooperatives -- in
countries such as the United States, Japan, the Netherlands,
Germany and Scandinavia, cooperatives form the basis of the
people's economy. That is because they have accountability.

Sure, the corporations must be supported as well, but the
small businesses cannot be served unless there is a good delivery
mechanism relying on collectivity.

The second step is for us to ensure technological support,
without which productivity will be poor. Our farmers are losing
to the deluge of imported products from China, Thailand and even
Vietnam.

So it is clear that farming credit policies must be
accompanied by all those steps. We need a comprehensive approach.

The farming credit scheme was intensified when you were
minister of cooperatives. Some have seen this administration's
decision to restructure the credit scheme as an indication of a
failure on your part.

Who says the farming credit scheme was a failure? That is
wrong. Had the farming credit scheme failed, this country would
have gone bankrupt. Food supply growth in 1998 was minus 14
percent from the total production of 48 million tons of unhusked
rice -- that is why we imported 5.2 million tons of rice. In
1999, we imported only 0.2 million tons. How could one say the
program failed when we managed to reduce imports?

Another proof is that small businesses have survived. The
sector grew by 14 percent during Habibie's administration. The
big businesses have still not played a role (in economic
recovery); instead it is the people's economy that has been
(maintaining the economy). Even the poverty rate declined ....

What motivated the government to restructure the farming
credit scheme?

Shame, maybe. It has given so much to the conglomerates,
granting trillions of rupiah in loans with long grace periods.
You know how only 21 companies dominate the economy. The
government is probably applying the logic (that it has been using
with the conglomerates), so it pardoned the errant farmers.

But this ruins the whole system. Aren't we supposed to build a
responsible system, with a market-driven economy, with good
corporate governance? Not like this slap-dash job with political
motivation behind it.

So you believe the pardon for farmers was politically
motivated?

Yes, it is a political move. Otherwise, there would have been
some preliminary steps rather than merely springing it on the
farmers all of a sudden. Besides, it is not even clear how they
would proceed with this restructuring of farming credits. How are
they going to restructure the debts of six million clients? How
many thousands of people will be needed to implement this policy?

It is easy for (chief economics minister) Rizal Ramli to make
statements (about the planned restructuring), and it makes him a
populist. But that only shows that he does not understand the
situation. The problem was not the farmers' failure to repay
their debts on time, but the government's failure to purchase
their rice in 2000.

The credit scheme has not failed, but the government failed
because it did not take comprehensive steps and establish
coordination among the ministries.

Farmers still need loans. How do you think the credit program
will fare in the near future?

I still think it is the responsibility of the government to
help the small people. It should disallow (the practice of)
spending trillions on big businesses, whose profits are
squirreled away in other countries.

We need to design a new package consisting of government
credits, management and technological assistance from both non-
governmental organizations and universities, a guarantee of
market shares and the creation of opportunities in the
manufacturing industry.

These four things have to be managed all at the same time. So,
credits are not everything. (Deka Kurniawan)