Economists urge govt to liberalize CPO trading

Economists urge govt to liberalize CPO trading

JAKARTA (JP): Economists have again urged the government to
liberalize trade in crude palm oil (CPO) and cooking oil to boost
the country's foreign exchange earnings.

Bungaran Saragih, an economist at Bogor Institute of
Agriculture, said yesterday the government would earn at least
US$2 billion from CPO exports in this financial year if it
liberalized the trade.

"The government should promote the export of commodities which
have the potential to be large foreign exchange earners to help
the country out of the economic crisis. The CPO industry falls
into that category and any increase in exports would also be of
benefit to smallholder farmers," Bungaran said in a discussion on
oil palm plantation management and the CPO and cooking oil
industries.

Bungaran said government intervention to stabilize cooking oil
prices had not only been ineffective but had also caused trading
in the commodity to become a very uncertain business.

"Inconsistency in government regulations covering trade in CPO
and cooking oil will kill the business in the long term because
the international market will come to view involvement with
Indonesian palm oil producers as fraught with risk and
uncertainty," he said.

Nawir Messi from the Institute for Development Economics and
Finance (INDEF) said the government policy of imposing a high tax
on the export of CPO had cost the country $384 million in lost
revenue this year.

Speaking at the same discussion, Nawir said the export tax had
cost the CPO processing industry $99 million and oil palm
plantation owners $400 million in lost revenue, $200 million of
which would have found its way to smallholder oil palm farmers.

In contrast, the increase in the export tax from 40 percent to
60 percent would earn the government a mere $126 million per
annum in extra revenue.

He argued that funding for the government subsidy to maintain
a reference price for cooking oil would increase to about $123
million this year as a result of the increase in the export tax.

The government plans to use the funds raised through the
export tax to subsidize cooking oil prices on the domestic
market.

Nawir said it was the middle and upper classes of society that
were reaping the benefits of the subsidy, not the poor at whom it
was supposed to be targeted.

"The high export tax has adversely affected the welfare of
smallholder oil palm farmers and helped those who are already
rich," he said.

Both Bungaran and Nawir shared the view that if the government
really wanted to help the poor then it should abolish the price
subsidy on cooking oil and instead use the money to provide the
needy with an income subsidy.

The two economists said the money would be better spent in a
program designed specifically to improve the welfare of the
country's poor. (gis)