Free trade is a must: Soeharto

JAKARTA (JP): President Soeharto reaffirmed yesterday Indonesia's determination to adopt a free trade and investment system amid a heated controversy over the proposed protection of a US$1.7 billion olefin project controlled by politically connected parties.

"We have to do our best to really be ready for free trade in the future. We cannot afford to be left behind," Soeharto said in his address at the opening of the 1994 Pacific Conference of Manufacturing and the 13th congress of the Institute of Indonesian Engineers here.

The President said: "We have to realize, whether we are ready or not, the world is moving fast towards a free trade system."

He also pointed out that Indonesia expressed its free trade and investment commitments at last month's meeting of the leaders grouped in the Asia Pacific Economic Cooperation (APEC) forum. The conference concluded with the determination to create the biggest free trade area in the world by 2020.

Debate on protectionism surfaced when executives of PT Chandra Asri Petrochemical Center urged the House of Representatives earlier this month to support their proposal for the imposition of a duty of between 35 percent and 40 percent on imports of olefin products, the raw materials for various downstream industries, which their company will start producing next year.

Chandra Asri is controlled by the Napan Group, Barito Pacific Group and Bimantara Group.

Warning

On the same occasion yesterday, State Minister for Development Planning Ginandjar Kartasasmita aired a warning against protectionism which could raise local production costs and erode the international competitiveness of Indonesia's industry.

"We have to be very selective in protecting our firms because such a measure will raise costs for downstream users, which in turn makes these industries less competitive," Ginandjar said.

"We have to ensure that protection does not constitute a government subsidy for non-competitive businesses, thus denying financial resources to the development of the infrastructure, education and health sectors, which are fundamental to our long- term success," he said.

"To be successful abroad requires a competitive economy at home," added the minister, who also heads the National Development Planning Board (Bappenas).

Neither Soeharto nor Ginandjar explicitly referred to the Chandra Asri debate.

Peter F. Gontha, a Chandra Asri executive, has argued that tariff protection for the olefin project "will not harm downstream industries, but will benefit them instead".

Despite his assurance, the Indonesian unit of Japan's Teijin Corp. has declared its opposition to high tariff protection for Chandra Asri. The unit, which needs petrochemicals to make fiber, said that if high duties raise its downstream costs, it won't make any new investments in Indonesia.

The Chandra Asri controversy has already reached the cabinet as evidenced by the different stances taken by some ministers.

Minister of Finance Mar'ie Muhammad, for instance, has been quoted as saying that no new industrial projects should receive protection. On the other hand, State Minister of Investment Sanyoto Sastrowardoyo was reported to be in favor of the protection for Chandra Asri.

The debate reached a new intensity last week after Soeharto reshuffled the country's tariff task force which was formerly headed by Mar'ie.

The new team now includes Sanyoto and is chaired by Coordinating Minister for Trade and Industry Hartarto. Neither of the officials was in the former team.

The finance minister, however, is still included as a vice chairman in the new lineup. (hdj)