Cutting trade controls
The trade and industrial reforms, announced on Monday, predictably did not attract as much attention as the Nov. 1 closure of 16 banks. The latter move, besides having an immediate impact, is affecting a large number of depositors, creditors and debtors and caused the lay off of thousands of people while threatening to make thousands more jobless within the next few months.
Nonetheless, the trade and industrial reform measures which are part of the IMF-supported program for the next three years are no less important for achieving the broad objective of the package -- the improvement of economic efficiency and competitiveness. The new policies are especially significant because they opened up what analysts have often seen as untouchable areas (the monopoly of the National Logistics Agency or Bulog).
The abolishment of Bulog's import monopolies for wheatflour, soybean and garlic in January will not only expose domestic producers to import competition, thereby forcing them to become more efficient, but also will remove market distortions from these commodities. Indonesia annually imports more than 60,000 tons of soybean, mostly for the livestock industry, and around four million tons of wheat. The move will not topple the national market domination of Soedono Salim's Indofood in the wheat milling, noodle, cookies, snack, food seasoning and baby food markets. But the import liberalization will open new business opportunities and expose Indofood's Bogasari mills to foreign competition.
The application of standard conversion factors for raw materials and intermediate goods used by export-oriented industries such as textiles, shoes and leather goods will contribute to improving producers' cash flows. Companies have been complaining for years over the slow processing of rebates for import duties paid on their raw materials due to the arduous verification of the imported input content of their exports. A similar boost will be provided by local materials sold to export- oriented industrial firms being exempt from the 10 percent value added tax they pay now.
The permit given to industrial companies in bonded zones to sell up to 50 percent of their production in the form of components to the domestic market is conducive to further promoting intra-industrial linkages.
The opening of the wholesale and distribution sectors to foreign manufacturing and foreign trading companies is quite a boon to foreign investors who have long complained of their inability to manage the domestic marketing of their products. Even though the retail sector remains closed to foreign companies until 2003, the wholesale liberalization could be a new attraction to woo new investors.
We should magnanimously acknowledge that domestic companies have a great deal to learn in managing efficient logistical arrangements and transportation, which are vital for the marketing of goods in such a vast archipelagic country as ours. The entry of foreign companies to the distribution sector will surely bring in new skills and technology in the various aspects of a total marketing concept. Efficient national distribution will become even more essential after 2003 when our market is to be integrated with those of the other ASEAN countries.
Despite all the good intentions stipulated in the latest determined by how effective their implementation in the field is. Unfortunately, this is one of the main weaknesses of our government bureaucracy. The government therefore should work harder to see that the latest reforms be properly executed, otherwise few new foreign investors will come to help us get out of the current down-cycle of our economy.