Cutting trade controls

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.