Gapkindo asks for credit facilities for retention program

Johannes Simbolon, The Jakarta Post, Jakarta

The Indonesian Rubber Producers Association (Gapkindo) has asked the government to provide credit facilities for its members to implement a rubber retention program agreed by Indonesia, Malaysia and Thailand.

Gapkindo's executive secretary Suharto Honggokusumo said on Thursday the credit facilities with low interest rate were necessary as not all of the association's members were financially capable of continuing to buy rubber from farmers while at the same time cutting their exports.

Suharto said former minister of industry and trade Luhut Pandjaitan had promised to provide such credit facilities and the association now hoped the current minister, Rini M. Soewandi, would deliver on the promise.

He estimated the association's members needed about US$7.5 million per month to implement the retention program.

"Some of our members are financially able to carry out the program, others are not. Thus, we expect the government in the near future to appoint banks from which our members could receive credit facilities," Suharto told The Jakarta Post.

Indonesia, Malaysia and Thailand -- the world's three largest producers of rubber -- agreed on Wednesday to cut their rubber output and exports in order to prop up the sagging price of the commodity.

The agreement was signed by Indonesia's Minister of Industry and Trade Rini M. Soewandi, Malaysia's Minister of Primary Industries Lim Keng Yaik and Thailand's Deputy Minister of Agriculture and Cooperatives Prapat Panyachatraksa on Wednesday in Denpasar, Bali.

According to the agreement, the world's top rubber producers would each cut output by four percent and exports by 10 percent, starting in January next year.

The ministers refused to specify the price target aimed at by the retention program.

However, they were all concerned about decreasing rubber prices, which they said had started in 1997 and turned worse more recently amid the global economic slowdown.

"The rubber price now hovers around 45 U.S. cents per kilogram (kg) on the international market, as against the peak price of $1.50 per kg the commodity once reached," Rini told a media conference on Wednesday.

The three countries will establish the International Tripartite Rubber Organization (ITRO), based in Bangkok, to monitor both output and the export cuts.

ITRO will start working in early February, Rini said.

The three countries would each set up a national body to manage and monitor implementation of the output and export cuts.

Indonesia, Malaysia and Thailand account for almost 80 percent of the world's rubber production.

Rini said both the Malaysian and Thai governments had allocated funds to finance the retention, but the Indonesian government did not have money to do so.

As such, Rini said, the government had asked local rubber exporters to continue buying rubber from farmers and, at the same time, curb their exports.

Suharto said Gaikindo's members were committed to making a success of the retention program as they were optimistic that it would shore up rubber prices.

The government's data indicates that Indonesia has 3.4 million hectares of rubber plantation, with a total output of 1.6 million tons. Of this, 1.4 million tons are exported, according to Suharto.