Plywood cartel goes
Plywood cartel goes
The plywood cartel will end on Monday provided politically
well connected businesspeople cannot have their way and revive it
in another form. Minister of Industry and Trade Tunky Ariwibowo
has issued four rulings which abolish the plywood joint marketing
boards of the Indonesian Wood Panel Association (Apkindo), export
quota system and all other restrictive marketing arrangements.
What complaints and strong protests by plywood companies and
convincing economic reasoning by analysts, from as early as 1994,
failed to accomplish is now being forced on the government by the
economic crisis.
Mohammad "Bob" Hasan, the chairman of Apkindo, persistently
denied that the marketing arrangement run by the association was
a cartel. But a cartel it was in operation if not in name. The
International Monetary Fund explicitly stipulated the dissolution
of plywood cartel in its statement on the Jan. 15 reform package
for Indonesia.
Apkindo was initially praised for stopping a price war between
exporters in the second half of the 1980s and protecting them
from the unfair practices of capitally strong buyers overseas.
However, the association degenerated into a rent-seeking
cartel in the early 1990s when it banned exporters from dealing
directly with foreign buyers. They were instead obliged to sell
only to trading firms, set up by some Apkindo executives in
various regions, at Apkindo-set prices and export quotas. Harsh
disciplinary measures were taken against errant exporters. The
trading firms collected commissions ranging from US$6 to $20 per
cubic meter depending on the export destination. Export shipments
and insurance were also arranged by Apkindo whereby Bob's PT
Karana Lines and Tugu Insurance played a major role. It was
Apkindo and its politically well connected chairman and not the
minister of industry and trade who controlled almost all aspects
of the plywood trade.
The most damaging impact of the cartel system was the
debilitating effect it had on the marketing capability of plywood
companies, because for almost 10 years they have been reduced
simply to being producing machines. While marketing is supposed
to be the spearhead of a manufacturing company, plywood producers
were denied the opportunity to learn about the international
market, to know their buyers. Now they are free to develop their
own marketing networks, exploring buyers' needs, preferences and
developing them into new products.
The reform measures, however, should not necessarily dismantle
the seven trading firms already set up in major international
markets even though they are not owned by Apkindo as an
organization but by Bob and his associates. They can still be
useful to plywood companies if they immediately get rid of their
rent-seeking mentality and offer reasonable marketing services at
competitive rates. It would be inefficient, especially for small
plywood firms, to develop from scratch export networks of their
own. The most important thing is that all deals are based on the
market mechanism and not on political bargaining.
Given the big sum of money involved in the cartel operations
and the vested interests of several top executives of the
association, the government should closely monitor the
implementation of the plywood market liberalization to ensure
that cartel-like practices which have damaged Indonesia's
reputation overseas are not revived in new clothes.
Indonesia is the largest hardwood panel producer in the world
with an annual capacity of more than 10 million cubic meters and
annual exports of $4 billion to $5 billion.
But now is a very tough time for plywood producers because the
two biggest markets -- Japan and South Korea -- are also facing
economic difficulties. But tough markets are the best grooming
ground for producing highly competitive enterprises. Fortunately,
plywood is one of Indonesia' most promising export commodities
since the steep depreciation of the rupiah.