Harboring corruption

The report by the Ministry of Transportation on Jakarta's international seaport, Tanjung Priok, which was the subject of articles on the front page of this paper for three consecutive days up to Wednesday, amply demonstrated once again the frustrations faced by businesspeople as a result of the chaos, congestion and corruption at major ports across the country.

The report, prepared for the Export/Import Facilitation Coordinating Committee, depicts how illegal fees are relentlessly levied every second of day in the country's largest and busiest harbor. From the moment of entry into the port, at the docks and even in the waters of the harbor itself, illegal charges are ubiquitous, thereby making port-handling costs in Indonesia almost twice as high as those in other ASEAN countries

Similar complaints have been raised by various industrial and trade associations, with the most common being the fact that an consignment of imports requires more than two dozen signatures from officials of the various government agencies involved in port operations, and the levying of illegal fees at almost every stage of that process.

What, then, makes the findings of the latest report so much more urgent than previous ones? Will it encourage the government to take as bold a measure to improve the flow of goods as the one taken by then President Soeharto in April, 1985?

Soeharto stripped the corrupt customs service of the right to inspect imports and entrusted this authority to the Geneva-based Societe General de Surveillance. This arrangement lasted for more than 10 years up until 1996.

There are, we think, several factors, that might make the government more responsive to the message contained in the report, though it is unlikely to lead to such a bold move as the hiring of an outside survey firm to inspect Indonesian imports at the ports of loading.

First of all, the report, commissioned by the Import/Export Facilitation Coordinating Committee under the chairmanship of chief economics minister Aburizal Bakrie, was the first one to be based on a very comprehensive study of Tanjung Priok port operations. The researchers methodically investigated all the causes of inefficiency, congestion and corruption at the harbor and made a list of recommendations for improving port management in general.

Moreover, as both Aburizal and Vice President Jusuf Kalla, who head the economic team of President Susilo Bambang Yudhoyono's United Indonesia Cabinet, are well-experienced businessmen, they should be fully aware of how crucial efficient ports are to the economy as a whole.

International trade (export and import) accounts for more than 50 percent of gross domestic product and more than 80 percent of this trade is carried by sea. As Indonesia is a vast archipelagic country, sea transportation also plays a key role in enhancing economic linkages between the various islands.

Efficiency in our ports is also a prerequisite for developing efficient supply chains, which are essential for attracting foreign investors. The rationale is that foreign investors will be encouraged to establish production networks in Indonesia if the country can become a reliable part of the global supply chain as superior logistics capabilities will enable companies to avail of local comparative advantages and economies of scale. The modern production system requires an efficient supply chain to allow for lower warehousing costs, lean manufacturing and just-in-time delivery.

Whatever recommendations are accepted and howsoever the reform measures are sequenced by the Committee, which consists of the representatives of all ministries and government agencies involved in port operations, there are several fundamental policies the government needs to introduce immediately.

The government should treat seaports as basic infrastructure. Consequently, state port management companies should not be tasked with making as big a profit as possible but should instead be classified mainly as self-financing entities. The primary yardstick for assessing port performance should be the level of its efficiency, as reflected in total port handling costs compared to ports in other ASEAN countries.

The greatest benefit that can be derived from seaports is not the direct profits from their core operations but rather the smooth, efficient flow of goods -- something that would contribute to strengthening the overall competitiveness of the economy.

The government should force the customs service to fully operate the electronic data interchange system for customs clearance of imports to minimize the opportunity for corruption. This system has never been fully put into operation since its launch in 1996 due to resistance from vested interests within the customs service.

It is the gross inefficiency, corruption and uncertainty surrounding cargo-stevedoring and customs clearance procedures that have led to Indonesian seaports being classified as high- risk harbors. Worse still, only six ports in the country have been certified as conforming with the International Ship and Port Facility Security Code, which came into force last July.

Significant improvements in the efficiency and security standards of port operations would automatically reduce the punitively high terminal-handling charges imposed by foreign shipping companies on containers bound for or out of Indonesia.