Hope for the future in manufacture and trade

Hope for the future in manufacture and trade

Rini M.S. Soewandi, Jakarta

The reality of Indonesia's trade and industry today can best
be described as a wheel of interlocking problems and
opportunities. To unlock the opportunities and make them a
reality, it is necessary to work on the problems, each one of
which reacts upon the other, making it very difficult to create
successful initiatives in one particular area, without at the
same time, looking at how this will affect the rest of the
"wheel".

The first priority set for me was to improve the people's
welfare, the majority of which are the group of farmers.
Ironically, the work that I and my staff at the Ministry of
Industry and Trade have done in this area is not thoroughly seen
as a positive effort.

All of the policies that have been implemented are the result
of much discussion between officials at my ministry and related
ministries and have been fully discussed and approved by the
House of Representatives.

Our initial concentration on the welfare of the farming
community recognizes that this group still constitutes around 30
percent of our workforce. Thus, some 63 million Indonesians are
directly dependent on the agricultural sector for their
livelihood.

The vast majority of our farmers are smallholders whose fate
is determined by external factors, right up to the cartels that
control the global trade in commodities. It is for this reason
that much effort has been expended by the Department of Industry
and Trade in the area of trade negotiations.

It is very clear that the international trading environment
for basic staples is far from level. The people of Japan, the
United States and the European Union lavish far more funds on
their cows and crops than we in Indonesia can possibly hope to
give our farmers. Farmers in these developed communities are paid
to produce inefficiently and, in the U.S., the practice of
subsidies goes so far as to pay farmers not to produce certain
crops.

Even Thailand, a partner in ASEAN, subsidizes its rice
growers, producing the price imparities that provide room to move
for smugglers who seek to undermine the livelihood of our farmers
for their own personal gain.

In recognition of the unfair playing field in vital
agricultural products, Indonesia has developed over the past
three years a role as a leader of the developing nations in
arguing for better conditions within the World Trade Organization
(WTO). We have achieved the right to "exclude" basic staple
foodstuffs from WTO tariff reductions in order to protect our
farmers from the worst excesses of this unfair international
competition.

The ministry has also been active in creating new
relationships with trading partners that provide the promise of
diversification away from our traditional markets of the U.S.,
Europe and Japan.

In just the most recent of the agreements with "non-
traditional" markets, Indonesia and Saudi Arabia have agreed to
seek ways to double their bilateral trade to US$1 billion next
year.

We have ended a decades-old practice in urging Singapore to
publish its full trade statistics with Indonesia. For its own
reasons, Singapore has yet to meet our repeated requests for full
disclosure (as required of it under WTO rules) and it becomes
another task for the new administration to urge the publication
of statistics that we believe can tell as much about the amount
and nature of smuggling that so severely affects our economy.

In domestic trade, a major focus has been to shorten the
distribution chain between producer and end user. In the
agricultural sector, we have introduced direct crop auctions that
have demonstrated the ability to both reduce the costs of getting
crops from the producer to the market, a move that benefits both
the consumer and the grower by cutting out unnecessary middlemen.

We have also made a number of changes in the area of taxes, in
particular, value added tax for export, such as that for cacao,
again import tax for gold was cut to encourage the development of
the Indonesian jewelry industry, one that has great potential to
employ many more people.

Many of these policies introduced by the ministry are aimed at
developing industries that add value to our basic products. Other
initiatives have aimed to develop the production of components
for our industries that can replace imported input. Much more
remains to be done in this area.

In our leather goods sector, for instance, raw hides are
exported for processing and then re-imported for our footwear and
leather goods industries, clearly increasing the cost of
production and making our industries less than competitive.

Much of the work done by the ministry over the past three
years has revealed basic shortcomings in our industries. The
Ministry of Agriculture has, for instance, been encouraging the
planting of improved strains of sugar for our farmers.

Protection has been provided in the form of import bans and
import tariffs in order to provide a breathing space for
industries such as this while productivity is increased. Such
initiatives will take time, but it is essential that rejuvenation
of our industries proceeds under the new administration so that
we can then relax these protectionist barriers.

My ministry has also been active in lobbying the Ministry of
Finance and the banking sector to be more accommodative to
industries such as the textile and garment sector. While the end
of the quota system for textiles and garments in the U.S. and
Europe will make some of our low-end products uncompetitive, we
still have competitive advantage in more sophisticated products.

It thus seems very clear that the way to retain our strong
role in the global export trade in textiles and garments is to
encourage investment in new machinery. In recent months we
finally won agreement from the banking sector to look at sector
companies on a case-by-case basis, rather than continue applying
a blanket ban on any loans to the sector.

Perhaps the greatest challenge is to combat smuggling, and in
this area the new administration's promise of tighter security
brings promise of a new attempt to finally scourge this parasitic
presence from Indonesian life. The Megawati government, through
my ministry and other institutions, has tried hard to stem
smuggling, but with little success.

The challenge of stopping smuggling, and with it the loss of
jobs for Indonesians, is unfortunately not just a matter of
motivating our customs staff and personnel of other institutions
that guard our ports.

Smuggling will always exist while we are forced to prop up
industries, creating a margin between the price of a commodity in
our domestic market and in the outside world. We cannot bring
down the prices of our commodities without rejuvenation of
industries, and this clearly is not a task that can be completed
overnight.

What is most essential is that the world of business and
government work together as closely as possible.

The writer was the Minister of Trade and Industry under the
Megawati government which ended its term on Tuesday.