INRO, under fire, defends role in rubber market

INRO, under fire, defends role in rubber market

KUALA LUMPUR (Reuters): The International Natural Rubber Organization (INRO) defended itself on Wednesday against criticism by Malaysia, saying it had achieved its goal of protecting producers against wild price swings.

INRO released figures which it said showed that the average price of rubber has been higher and more stable during its two decades of existence than before.

The figures also indicate that INRO member governments made a profit after INRO sold off stocks at the end of two previous rubber agreements, it said.

The Kuala Lumpur-based organization, on the verge of breaking up in the face of producer dissatisfaction, was responding to renewed criticism by Malaysia, which has said it will leave the body in October.

"We don't believe in what INRO has done over the last 21 years, that the buying in the buffer stock can hold the prices of producers," Primary Industries Minister Lim Keng Yaik said on Tuesday.

"We left INRO because we don't believe that all INRO's interventions have helped producers all these years."

Malaysia has launched its own program, buying rubber from producers to try to cushion them against the impact of prices at 30-year lows.

But INRO officials have questioned whether Malaysia and Thailand, which also has its own program, are better off on their own or under the umbrella of the 22-member organization made up of six producers and 16 consuming nations.

INRO said the yearly average price for RSS1 rubber between 1961 and 1980, before the organization was formed, was 168.99 Malaysian/Singapore cents per kg.

The average price rose by 52 percent to 257.66 cents between 1981 and 1998, when INRO was in effect.

"Taking inflation and other exogenous economic factors into consideration, there was still a substantial increase in price, arguably attributable to INRO's price stabilization effort," it said.

INRO is bound by the International Natural Rubber Agreement (INRA) to defend the price of rubber once it falls below a floor price by buying rubber in the open market.

During the first rubber agreement dating from 1979, INRO bought 373,697 tons between 1981 and 1985, costing about 900 million ringgit ($240 million), inclusive of holding costs, financed through members' contributions.

When the stocks were sold in 1989, members pocketed a profit of 132 million ringgit, nearly a 15 percent return on capital, it said.

INRO said that from 1981 to 1998, rubber prices were more stable than before the first agreement.