Govt told to let market decide cooking oil price

JAKARTA (JP): Analysts have welcomed the government's decision to remove the subsidy on cooking oil but have urged the government to refrain from interfering further with trade in the commodity and allow the market to establish the price of the commodity.

Arif Arryman from the Econit Advisory Group warned the government that it was repeating past mistakes by appointing the Indonesian Distribution Cooperative (KDI) to play the role vacated by the State Logistics Agency (Bulog) in the cooking oil distribution chain.

Arif said the appointment of KDI showed the government was merely shifting preferential status from big business to cooperatives and small and medium-sized enterprises.

"It's the same pattern, only with different players. They have kicked out the old groups which grew fat on Bulog's largess and given the same privileges to new groups," he said.

He said the government should instead focus on strengthening the distribution system.

"Cooking oil supply problems will persist for as long as the government continues with the approach which caused our economy to become vulnerable in the first place, namely giving preferential treatment to certain groups," he said.

Bulog's acting chairman Rahardi Ramelan said on Tuesday that the subsidy on cooking oil would be lifted next Monday, the day Bulog stops setting the selling price for the commodity. KDI will then take over Bulog's role in the distributing chain.

The decision to lift the cooking oil subsidy came a week after similar subsidies on wheat flour, sugar and soybeans were lifted and Bulog's trading monopoly on the commodities was brought to an end. After next Monday, Bulog will only have a monopoly on the rice trade.

Director of the Centre for Strategic and International Studies, Pande Raja Silalahi, said he regretted the government's decision to make KDI responsible for cooking oil distribution in the country and urged the government to allow cooking oil prices to be determined solely by the market.

"Just leave distribution to the market," he was quoted by Antara as saying.

Former finance minister Frans Seda said the government's first priority should be to improve the distribution network in order to rein in the soaring prices of all basic commodities.

"If the distribution system worked well there would be no need to give preference to certain groups and the market would perform the function it should in a market economy," he said.

The director of the Center for Agriculture Policy Studies, H.S. Dillon, hailed the removal of the subsidy, but said it was inappropriate and "experimental" to give KDI a role in the distribution network.

"The government should not be using experimental policies," Dillon said on Tuesday after Rahardi, who is also the Minister of Industry and Trade, announced the measure.

He criticized government ineptitude in trying to ensure a steady supply of cooking oil and said he doubted the latest measure would be successful in lowering prices, unless the government pursued a fixed policy with clear targets.

Arif said the cooking oil subsidy had done very little to help poor people so far.

"How much have we spent on the subsidy? Who has actually benefited? Have the people actually had to pay less as a result? The answer is No," he said.

The price of cooking oil, a byproduct of crude palm oil (CPO), has been on the rise since the crisis worsened early this year.

Although the government has set a 60 percent export tax on CPO and its derivatives, large volumes of CPO and cooking oil have continued to leave the country, much of it smuggled. The resulting scarcity in supply has forced prices up to a level unaffordable for many Indonesians. (das)