Mixed reactions greet Soeharto's protection views

Mixed reactions greet Soeharto's protection views

JAKARTA (JP): Entrepreneurs, legislators and an economist gave mixed reactions yesterday to President Soeharto's views on protection for upstream industries.

Soeharto said in his annual budgetary speech before the House of Representatives here yesterday that tariff protection can be given to upstream industries as long as certain conditions are met.

First, protection may be given for a limited period of time only and must be gradually reduced. "The sooner the better," Soeharto added.

Secondly, protection must not be contrary to any international agreements to which Indonesia is party, such as the General Agreement on Tariffs and Trade, and those signed by the Association of Southeast Asian Nations and by the Asia Pacific Economic Cooperation forum.

Finally, the level of protection must not stifle or hinder the growth of companies operating in downstream industries, the President said.

"Excessive protection will result in higher production costs for downstream industries and, consequently, remove their competitive edge," Soeharto warned, while unveiling the draft state budget for 1995-1996 fiscal year which begins in April.

He called on the public not to prolong debate on protection. Protection has become a widely-discussed issue during these last few months after the PT Chandra Asri Petrochemical Center, the country's first olefin plant, asked for the government's protection against imports.

However, Soeharto made no explicit mention of Chandra Asri.

Acceptable

Sharing Soeharto's view, entrepreneurs Sukamdani S. Gitosardjono and Tanri Abeng noted yesterday that protection is acceptable as long as it benefits the country.

Tanri of the Bakrie Group specified that protection should not be awarded on the basis of political considerations, while Sukamdani of the Sahid Group proposed that the maximum time limit for protection be set at 10 years.

Meanwhile, legislators Hamzah Haz of the Moslem-based United Development Party, and Tadjudin Noer Said and Bambang Warih Kusumah, both of the ruling Golkar faction, said they could accept any level of protection for any upstream industry as long as it is given transparently and meets the conditions set by President Soeharto.

Tadjudin, however, asked the government to consult with the House before opting to protect any industry. "Although the final decision rests with the government, it would be wise for the government to consult with the House first", he said.

He noted that the presence of representatives of Chandra Asri at a hearing with the House's commission for manufacturing and energy industries last month was a sign of growing transparency.

At the hearing, Chandra Asri's Peter F. Gontha proposed that the government impose a duty of between 35 percent and 40 percent on imports of ethylene and propylene, two of the olefin products to be manufactured by his company.

Gontha acknowledged that the imposition of higher tariffs on olefin products will affect the prices of downstream products but said that the "impact will be small".

Tadjudin, a member of the budgetary commission, contended that if the protection was given in the form of import tariffs, "sooner or later it will hinder the growth of companies in downstream industries".

Instead of tariffs, Tadjudin asked the government to consider other forms of protection, such as subsidies -- if possible -- or monetary or fiscal support.

Concurring with Tadjudin, economist Hadi Soesastro queried how tariff protection could be introduced without hurting downstream industries, as mandated by President Soeharto.

"I want to see how possible it is; imposing tariff protection for Chandra Asri without damaging the competitiveness and efficiency of companies downstream," Hadi told The Jakarta Post.

Hadi, also a director of the Center for Strategic and International Studies, asked the government to not even consider giving protection to Chandra Asri to save it from defaulting on loans.

"Chandra Asri's creditors, which are mostly foreign banks, must have made their own calculations when they decided to extend loans to the company. It's wholly their responsibility, not the government's," Hadi argued.

Chandra Asri's plant represents an investment of US$1.7 billion and is controlled by the Barito Pacific, Napan and Bimantara groups. Located in Cilegon, West Java, it is expected to start trial production later this year.

It will manufacture ethylene and propylene, the intermediate petrochemicals used to make polyethylene and polypropylene, the raw materials for the production of plastics, synthetic fiber, tires, pesticides, synthetic rubber and detergents.(hen/hdj/rid)