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.