Deficiency within reform

Deficiency within reform

Except for the applauded definitive targeting of import tariff reduction up to the year 2003, the May 23, 1995, package of economic reform measures has been criticized by most businessmen as deficient in the most essential elements -- removal of monopolies and other forms of non-tariff barriers.

In fact, as we reported on Wednesday, the measure taken on investment areas was rather confusing. First of all, the copy of Presidential Decree No.31/1995 on the Negative Lists of Investment Areas was not available until one day after the announcement of the package. Because the State Minister of Investment, Sanyoto Sastrowardoyo, was not present at the joint ministerial news conference (he was leading an investment mission in the United States), the puzzling questions that arose could not be clarified immediately.

Indeed, several points in the Investment Negative Lists, as stipulated in the 15-page official press statement on the package, have turned out to be different from those stipulated in the sections attached to Presidential Decree No.31/1995.

Many foreign businessmen might initially have been excited about the passage in the press statement saying that supporting services for domestic trade are now open to Indonesian-foreign joint ventures. But the attachment to Presidential Decree No.31/1995 includes those services in the list of business areas totally closed to direct foreign investments either through wholly foreign-owned companies or joint ventures. Moreover, neither the press statement nor the decree explain what is meant by supporting services for domestic trade. In the 1993 the Investment Negative List this was defined as supporting services for trade and advertising.

The press statement lists civil aircraft maintenance service near airports as open to Indonesian-foreign joint ventures but Presidential Decree No.31/1995 does not mention this at all. The decree opens civil aviation service to Indonesian-foreign joint ventures, but that is not mentioned in the press statement.

We think, therefore, that Minister Sanyoto will have to do a lot of explaining, otherwise foreign businessmen, supposed to be the main target of the measure, will not understand it, let alone act to seize on the newly-opened business opportunities.

But the main reason for disappointment in the new package seems to be the maintenance of monopolies in several basic agricultural commodities such as soybeans, soy meal, sugar, wheat flour and cloves. Some might see the disillusionment as unreasonable and out of proportion. After all the package removed non-tariff barriers from 81 items and the government says that the items still subject to non-tariff barriers now represent only 2 percent of the total number of categories of products listed in the Tariff Book (harmonized system). As a percentage of total import value in 1994, those controlled commodities represented 6.3 percent.

We reckon, though, that the disillusionment has been caused not by the monopolies held by the National Logistics Agency (Bulog) but by the ones granted to private companies which happen to be controlled by politically well connected businessmen. Wheat grain milling, for example, remains virtually monopolized by PT Bogasari Flour Mill, which is controlled by Sudono Salim. The government did allow new mills, but not a single investor has seemed interested because of the condition that new mills have to export the bulk of their production. The clove trade is monopolized by the BPPC and PT Sarpindo monopolizes the crushing of soybeans into soy meal. Both companies are controlled by businessmen with strong lobbying power.

Moreover, as various studies have concluded, many of the monopolies have been hurting, instead of benefiting, the consumers, who are mostly the common people (wheat flour, sugar, cloves and soybeans) and small and medium-scale firms engaged in the raising of livestock and poultry and fish farming.

However legitimate the disappointment may be, we should also be pragmatic and not expect too much at a time. The government itself has repeatedly stated that economic reform is a gradual process. And the latest package did prove that the process is continuing, although at a pace seen as much slower than expected by most businessmen.

But as we argued in this column on Wednesday, the magnitude of a reform package at any one time is only as big as the clout of the technocrats in selling their ideas to the President. That is how the game of political economy is now played.