New clove monopoly will 'undermine reforms'

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)