Govt abolishes plywood cartel

JAKARTA (JP): Wood processing companies are rejoicing over the dismantling of the plywood cartel within the Indonesian Wood Panel Association (Apkindo) as they will be able to deal directly with buyers overseas starting Feb. 2.

Minister of Industry and Trade Tunky Ariwibowo issued four decrees last week which remove all restrictions on plywood trade, dismantle the joint-marketing boards of Apkindo and revoke the quota system in plywood exports starting next Monday.

The new rules follow up the 50-point Memorandum of Economic and Financial Policies agreed to by the Indonesian government and the International Monetary Fund on Jan. 15 as a condition to the US$43 billion bailout package arranged by the IMF.

The memorandum stipulates, among other things, that formal and informal restrictive marketing arrangements -- including those for cement, paper and plywood -- will be dissolved as of Feb. 1.

No firm will be forced to sell its products through a joint- marketing organization or be required to pay fees or commissions to it. Neither will any organization be allowed to dictate production volume or market shares to individual enterprises.

"It's been almost nine years since we were first prohibited from directly marketing our own plywood overseas. We do not know who our buyers are," said an executive of a major plywood company.

The businessman, who asked for anonymity, said although plywood firms had to rebuild their marketing networks overseas, it would still be much better than continuing to work under what he called the rent-seeking cartel system.

Since the early 1990s, Apkindo, with the consent of the government, has obliged all plywood companies (about 120) to export only through its trading arms set up in various regions.

Apkindo sets an export quota for each member as well as an export price for importing countries and collects fees ranging from US$6 to $20 per cubic meter of plywood which is exported.

"We actually have never known the actual prices paid by buyers overseas because only Apkindo's trading firms are authorized to deal with buyers," the executive said.

Mohammad "Bob" Hasan, who has chaired Apkindo since the mid- 1980s, strongly denied that the marketing system he built for Apkindo was a cartel. But IMF explicitly mentioned the plywood cartel in its statement on the Jan. 15 reform package.

Bob, who himself owns one of the largest plywood groups in the country, said last weekend that Apkindo only monitored prices in the international market and provided them to exporters.

He said Apkindo would abide by the reform measures, but insisted it was not Apkindo but the Ministry of Industry and Trade that set export quotas for its members.

However, the marketing director of another plywood firm said the export quotas fixed by Apkindo were simply rubber-stamped by the ministry.

All plywood company executives interviewed for this story were willing to make comments only on the condition of anonymity.

Under Apkindo's marketing system, plywood companies have been simply required to notify Apkindo-appointed trading arms how much and what quality standard they had for exports for a certain period of time.

"Apkindo's seven trading arms, which are controlled by the Apkindo chairman, then match the export orders with import orders they receive from foreign buyers. But the quota distribution has never been transparent," the marketing executive said.

Another plywood company executive cautioned that the government should closely monitor the dissolution of the plywood cartel because several individuals with vested interest might try hard to circumvent the liberalization rules.

"We export between 5 and 6 million cubic meters of plywood a year. You can imagine how much money has been collected under the cartel system," he said.

He said that under the Apkindo marketing scheme, plywood exports had to be insured by PT Tugu Insurance and quite a portion of the exports were shipped by PT Karana Lines -- both companies partly owned by Bob.

In addition, companies were charged $2 per cubic meter of plywood exported to Japan for what Apkindo claimed to be quality control services.