Doubt cast on rubber cartel

Doubt cast on rubber cartel

Sari P. Setiogi, The Jakarta Post, Jakarta

The establishment of a rubber cartel by Indonesia, Malaysia
and Thailand has had an immediate positive impact on the price of
the commodity.

However, a top executive warned that International Rubber
Limited (IRCo), which was set up by the three countries on
Tuesday, might not succeed in propping up rubber prices in the
long term.

Local traders said the rubber price on the international
market rose to US$1.20 per kilogram after the signing of the
accord for the establishment of IRCo from $1.17 per kilogram on
Tuesday morning.

IRCo was established amid concerns over the declining price of
the commodity over the past several years. The cartel was
expected to prop up the price of the commodity and thus ensure
bigger profits for millions of rubber farmers in the three
countries. Thailand is the world's largest rubber producer,
followed by Malaysia and Indonesia.

However, a top executive of an Indonesian rubber company told
The Jakarta Post that he doubted the effectiveness of the cartel.

He mentioned the failure of the former International Natural
Rubber Organization (INRO), which was dissolved in September
1999. The organization, which consisted of 21 countries made up
of both natural rubber producers and consumers, failed to
stabilize the price of the commodity.

"If an organization of 21 countries failed, how can a cartel
made up of three countries do better?" he said.

The three countries have estimated that a total investment of
US$225 million will be needed to make IRCo effective. They have
agreed to put in $4.5 million as the initial investment in the
firm, with Indonesia and Malaysia providing $1.5 million each and
Thailand $2.5 million.

The three countries will share the total investment in the
future based on their output with Indonesia obliged to provide
$75 million.

However, the executive doubted if Indonesia could meet its
obligations.

"Given the financial situation recently, are we really able to
afford that much?" he questioned.

He also pointed out that each country in the cartel had their
own interests, which could cause internal conflicts in the
company. As an example, he mentioned Thailand's plan to open up
160,000 hectares of rubber plantations starting in 2004.

"This goes against the supply management scheme deal of 2001,"
he said.

IRCo will prop up the rubber price by controlling exports and
output.