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.