Harboring corruption

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.