Govt to expand subsidized-rice scheme for the poor

JAKARTA (JP): The government is to expand its scheme to provide the poor with heavily-subsidized rice to cover at least 7.5 million families from next month and will work to ensure the price of the commodity falls, according to the latest agreement with the International Monetary Fund (IMF).

"Our program to provide poor families with rice at a subsidized price which currently covers over 2 million families will be extended to cover at least 7.5 million families by October," the government said in the Supplementary Memorandum on Economic and Financial Policies (MEFP) which was signed on Friday.

According to the document, the government will allow private companies to import rice in a bid to increase supplies on the domestic market. Value added tax on rice will also be suspended.

The document explained that a disappointing second harvest and panic hoarding had contributed to the sharp increase in rice prices in recent weeks.

"As a result, domestic market prices are currently close to international prices. This has made it even more urgent to shelter the poor from the effect of high prices."

Domestic rice prices have soared to more than Rp 4,000 per kg in recent weeks, despite government market operations in which it has been sold for Rp 3,000 per kg.

With almost half of the country's 202 million population forecast to be living in poverty by the end of this year, more and more people will become unable to buy rice at current price levels.

In July, the government launched a program to provide the country's poorest families with 10 kg of medium-quality rice every month for Rp 1,000 per kg.

"Because of higher market prices, it has become even more urgent to supply low-priced rice directly to needy families. This program is being rapidly expanded with the help of provincial governors, (and) it may ultimately cover 15 million families," the document said.

In an immediate response to the rice situation, particularly the high price level, the government will embark on a seven-point plan of action.

It explained that in order to stabilize and then reduce market prices, the State Logistics Agency (Bulog) would substantially increase the quantity of rice released onto the market at below market prices and would maintain a higher level of releases until the main harvest in March and April next year by securing new import contracts to ensure adequate stocks.

"Also, for the first time in thirty years, we will allow private traders to import rice," the document said.

Value added tax on rice will be suspended and the government will continue to provide physical protection to traders, warehouses and transporters, it added.

The high price of rice has prompted widespread looting of rice warehouses and trucks transporting the commodity in some parts of the country.

Early this week, thousands of students staged a major demonstration to urge the government to cut food prices. The students also demanded that President B.J. Habibie step down.

IMF Asia Pacific director Hubert Neiss said on Monday that his monthly review of Indonesia's economic reform program this week would focus on how to stabilize the price of the commodity.

In an effort to improve the overall food situation, the government has also ended Bulog's monopoly on the import and distribution of wheat, sugar and soybeans.

"These commodities will now be imported by the private sector. We have also recently decided to eliminate subsidies on wheat and sugar and to gradually phase out the subsidy on soybeans," the government said in the document, adding that subsidies on the import of soybean meal, fishmeal, and corn had also been eliminated.

It explained that although it would have been desirable to maintain the subsidies amid the current crisis, the benefit to consumers was being eroded by difficulties in preventing traders from substantially marking up prices or illegally reexporting the commodities.

"The removal of subsidies on these commodities means that existing export bans (except for rice) are no longer relevant and will be eliminated by September 21."

The government had earlier pledged Rp 15.71 trillion from this year's state budget to subsidize basic commodities. (rei)