Govt lifts subsidies on commodities

JAKARTA (JP): The government on Wednesday lifted subsidies on wheat flour, sugar and soybeans, simultaneously liberalizing their importation and scrapping applicable import duties to reduce its burden in meeting people's needs for the commodities.

Effective immediately, the move is also meant to accelerate implementation of its market-oriented economic policy.

Minister of Industry and Trade Rahardi Ramelan said the government was confident the measure would be able to stabilize prices at affordable levels for most people.

"There will be no more subsidy and monopoly. We will leave it to the market mechanism," Rahardi said after attending a weekly Cabinet meeting at Bina Graha presidential office.

"Other costs imposed for basic commodities will be also lifted as a part of the government's efforts to curb inflation."

The minister indicated the government would also lift its subsidy on cooking oil in stages.

Rahardi, who is also the head of the National Logistics Agency (Bulog), said general importers were completely free to import the commodities and they would be exempt from import duties.

The government is retaining its subsidy on rice -- a political tinder box -- on the grounds it is still seeking the most appropriate mechanism to deregulate trading in the staple.

"We are still preparing the strategies, but we do not need to disclose it to you now. What is important is how to make the price affordable," Rahardi said.

He added the government would also sell rice at market prices during its market operations because it anticipated the price would normalize when stocks were bolstered.

Earlier Wednesday, State Minister of Food and Horticulture A.M. Saefuddin attributed the increasing price of rice to differences in world market prices, domestic market prices and the price set by the government in its market operation.

"These three vary substantially," Saefuddin said before the Cabinet meeting.

Market operations to help people severely affected by the crisis have been conducted in 23 of the country's 27 provinces, with about 230,000 tons of rice being sold at a much-reduced price. Market operations will last until March 1999.

In a memorandum of economic and financial policies signed with the International Monetary Fund (IMF) in June, the government pledged to spend 7.5 percent of its Gross Domestic Product (GDP) for social safety net programs extending to electricity, fuel, medicines, foodstuffs and other needs.

The two parties also agreed on temporary subsidies for rice, soybeans, sugar, wheat, flour, corn, meat and fish, which account for a substantial chunk of the expenditure of poor households.

The government plans to import one million tons of sugar, 700 tons of soybeans, 4.25 tons of wheat and 4.1 million tons of rice for the 1998/1999 fiscal year.

Beddu Amang, who was replaced by Rahardi as Bulog chief late last month, said in July the agency would need about US$2.7 billion in soft credit from Bank Indonesia to import essential commodities, including 3.1 million tons of rice, for this fiscal year.

Another Rp 5.4 trillion is needed to finance market operation programs aimed at stabilizing basic commodity prices.

Rahardi noted Wednesday: "The price of local sugar is now higher than the international market... I believe that farmers enjoy the high price."

The abolition of the wheat subsidy will deal a heavy blow not only to bakeries and producers of instant noodles, but also for consumers of the latter product, a popular food during the crisis due to its relatively cheap cost.

The Cabinet meeting, which was focused on issues pertaining to the economy, finance and industry, also discussed measures to ensure security of supplies of foodstuffs before the special session of the People's Consultative Assembly in November, Christmas in December, the Moslem fasting month beginning the same month, New Year and the Idul Fitri Moslem holiday.

Rahardi said the government was confident it would be able to anticipate rising demand.

"For rice, wheat, sugar, cooking oil and soybeans, demands for the basic commodities are expected to surge by 10 percent to 20 percent," he said. (prb)