New clove monopoly will 'undermine reforms'

JAKARTA (JP): PT Kembang Cengkeh Nasional's (KCN) alleged move to monopolize the nation's supply of cloves, a major ingredient of clove-blended cigarettes, will undermine the country's economic reforms, say analysts.

Several analysts, including director of the Indonesian Business Data Center Christianto Wibisono and economists Umar Juoro and Didiek J. Rachbini, told The Jakarta Post Saturday that the unofficial requirement forcing cigarette makers to buy cloves from KCN was against the reform agreements signed with the International Monetary Fund.

Under the IMF-sponsored US$43 billion rescue package, Indonesia is required to dissolve the clove monopoly given to the Clove Marketing and Buffer Stock Agency (BPPC) by June.

The agency, which was controlled by President Soeharto's youngest son Hutomo Mandala Putra, has stopped its operations before the deadline in line with the government's promise to speed up its reform process.

The analysts said the alleged new monopoly practice by KCN could lead to another delay in the second $3 billion disbursement of the IMF-brokered bailout fund.

The IMF delayed the second disbursement, originally scheduled for March 15, when it perceived that the government was backtracking on its previously agreed to reforms.

The fund has come to an agreement with the government on new reform measures but has yet to decide whether it will soon disburse the stalled loan.

"We have yet to recover from our wounds. Now this company adds another one," Christianto said.

"The IMF is essentially against a clove monopoly, regardless of the name of the company holding the monopoly," said Umar, a senior analyst at the Institute for National Development Studies.

KCN is also controlled by Hutomo Mandala Putra, popularly known as Tommy.

KCN's alleged control over the clove supply was first reported by Kontan tabloid in its April 27 edition, which hit newsstands Friday.

The tabloid said most cigarette companies were bound by one- year or longer purchase contracts with KCN.

Should a cigarette company not buy cloves from KCN, it is reportedly unable to purchase excise stamps from the customs and excise office.

The trading arrangement, Kontan said, was designed to keep KCN -- currently holding 167,000 tons of clove stocks inherited from BPPC -- in business.

The chairman of the Association of Indonesian Cigarette Companies, Ismanoe Soemiran, told the Post that the association's members were unofficially required to buy cloves from KCN as a prerequisite to purchase excise stamps from the Directorate General of Customs and Excise.

The director general of custom and excise has denied that his office operated under such arrangements.

Ismanoe said the new clove trading arrangement with KCN benefited small cigarette makers because they did not have ready stocks of cloves and were heavily dependent on KCN's supply.

"We've gotten used to the trading system under BPPC. Therefore, we need a transition period toward a free market. Otherwise many of us, especially small makers, would die," Ismanoe said.

Umar, however, said that small cigarette companies would benefit if the monopoly was eliminated since clove prices would subsequently decrease.

"The monopoly makes clove prices high," Umar said.

BPPC was granted its clove trading monopoly in early 1991, and reportedly enjoyed large profits from the arrangement.

Under the scheme, farmers were required to sell their cloves to cooperatives which were, in turn, obliged to sell their stocks to BPPC. Cigarette makers could only buy their cloves from BPPC.

"KCN's establishment shows that the clove monopolizers are now in despair over the IMF stripping them of their bountiful source of income," Christianto said. (jsk/gis)