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)