Policy on staple food confusing

The government has decided to let prices for most of the nine basic commodities to be determined by market forces. Economist Kwik Kian Gie discusses how this policy sits with the 1945 Constitution.

JAKARTA (JP): Article 33 of the 1945 Constitution states that "production branches" (production in different sectors of the economy) which are important for the country and affect the lives of the general public must be controlled by the state. Now, what are defined as production branches?

According to economics, production activities are not confined to manufacturing or processing goods, but also include trading and distribution services. The trading and distribution of commodities which affect the lives of members of the public, therefore, must also be controlled by the government.

Because the nine basic commodities are vital to the public and are currently in scarce supply, their trading and distribution are of the utmost importance to people and must be controlled by the state to the benefit of the people. The government will be acting in violation of the Constitution if it does not intervene in their marketing and distribution.

High prices have rendered basic commodities unaffordable for the majority of people, particularly the 70 million of the country's 202 million souls who are now living below the poverty line. That was why the International Monetary Fund's (IMF) Asia- Pacific director, Hubert Neiss, had to make a very difficult decision in June on whether or not to provide loans for food subsidies here.

If the IMF had decided not to assist Indonesia supply foodstuffs and medicine to the greater part of its population, starvation and social unrest might have disturbed the country to such an extent that its US$43 billion aid package would be wasted. Furthermore, if the IMF had not helped to finance routine government expenditure, the government would have been unable to operate and the fund would be left with no partner other than the angry people. The IMF, therefore, was forced to abruptly decide to provide Indonesia with an additional $6 billion in aid on top of the $8 billion pledged by the Consultative Group on Indonesia (CGI).

Thus, funds for food subsidies are now available for the coming 12 months so how can the government now suddenly decide to end subsidies on basic commodities, with the exception of rice and cooking oil, when the people are crying out in hunger?

State Minister of Food, Drugs and Horticulture A.M. Saefuddin has said the government will sell low-price rice to the poor through market operations.

But will the market operations only be conducted in traditional market places? What about market operations in remote areas where there are no market places? Will the State Logistics Agency (Bulog) be assigned to distribute rice in remote areas where there are no market places? If that is the case, hasn't the IMF recommended that Bulog's role in distribution be abandoned?

Press reports have said that traders are mixing rice intended for market-operations with their own higher quality rice so that they can sell the blend for a higher price. This practice means that the government subsidy is not reaching the poorest elements of society for whom it is intended. How will the government respond such the corrupt practice?

Surely, the establishment of Bulog years ago was not meant to distort the market mechanism or facilitate corruption, collusion and nepotism. That such practices have been flourishing in Bulog is certainly possible, but in which government institutions are they not?

I think Bulog was established in response to Article 33 of the 1945 Constitution. If its existence leads to market distortions, then so be it. That will be tolerable for as long as the benefits enjoyed by the public are of greater value.

The country's founding fathers who drafted the article apparently understood economics and were more sensitive to the needs of the people than those who are currently in power.

That means the nation's governing elite are duller than ever. Or is it just that we have the wrong man in a vital place? Perhaps it is because an engineer who has just been taught how to control an engine is now responsible for managing trade which affects the interests of the entire population.

Market mechanisms are good, but that does not preclude the government from all intervention in the market. In the United States and Europe, there are some industrial sectors where the activities are monopolized by the government for the interests of the people.

If Bulog does turn out to be a hotbed of corruption, then we can think of the agency as a warehouse of rice and the bad officials as the rats. The obvious answer, of course, is to get rid of the rats. However, the government, unable to catch the rats, is currently trying to set the warehouse ablaze.

The strange thing is that those assigned to set the warehouse on fire are themselves so tainted with corruption that they are giving the rats time to escape before incinerating the building and its remaining contents.