Reform and the cigarette industry

By Hans W. Vriens

HONG KONG (JP): Indonesia is in the middle of a political, social and economic transformation as fundamental as what Central Europe had to go through after the fall of the Berlin Wall in 1989.

The changes are the most wide-ranging since independence from the Dutch in 1949. They also confuse many people. President Abdurrahman Wahid has drawn flak for his fumbling, flip-flopping and inconsistencies in his policies, like his attempt to dismiss Gen. Wiranto. These accusations miss the point.

The strategy of the President has been perfectly clear all along. Establish civilian control over the military, keep the island-nation together, pacify the outlying regions by dealing with their pent up frustrations built up during the past 32 years, establish a civil society and break the economic power of the former first family and their cronies.

Few people outside Indonesia seem to understand what is going on. Portfolio investors in New York, who take their cue from CNN, even react with disgust when the word Indonesia is mentioned. They do not want to invest in a country that, according to the reports they watch on television, is burning.

All they want to hear about is ".com". As a result, the market capitalization of Indofood, a real company that happens to be the biggest producer of noodles in the world, is currently less than a high-tech start-up in the United States. From now on, we are expected to spend our days calling and being online. Nothing else.

Compensating for his narrow political base, the President has marshaled impressive international support for his administration, strengthening the belief that he is the one to overcome the legacy of prolonged authoritarianism and economic crisis.

In January, donors pledged a generous US$4.7 billion for Indonesia, influenced by President Abdurrahman's leadership, which the World Bank called a popular government with a strong mandate. However, there is more at stake than a "huge struggle" on all fronts between President Abdurrahman's "future-oriented democratic forces" and an entrenched and resisting military, as Richard Holbrooke, the U.S. ambassador to the United Nations, put it.

President Abdurrahman and many of his ministers may be committed to economic and democratic reform, excluding the military from politics and holding the country together. However, these views are not shared by everybody.

There is a growing concern among international donors that despite reformist statements by the President, little is being done.

Worse are the efforts by old-guard civil servants and entrenched interests to obstruct new policies and work against President Abdurrahman. Nowhere is this more obvious than in the way the cigarette companies, the most powerful industry in Indonesia, have refused to adapt to the "New Indonesia".

Instead the cigarette industry, assisted by civil servants, who according to some analysts are corrupt, is fighting tooth and nail the first modest attempts to start regulating the industry.

Indonesian cigarette companies refuse to abide by a new law forbidding cigarette advertisements on television, introducing health warnings and lowering tar and nicotine levels. This is important, because 90 percent of cigarettes sold in Indonesia are so-called clove or kretek cigarettes, whose tar and nicotine levels are extremely high.

The Indonesian cigarette industry has come together to launch a massive misinformation campaign to make sure that Indonesia remains the most unregulated market for cigarettes in the world.

The fact that smoking destroys your health has to be kept secret from the Indonesian public. Indonesia is also the only country in the world where the excise system is designed by and for the benefit of the cigarette industry. As a result the industry is the most profitable in the world.

The Association of Indonesian Cigarette Producers is leading the misinformation campaign. Its spokesman claims the Indonesian cigarette industry cannot lower tar and nicotine levels from their currently dangerously high levels. The association knows perfectly well that all big Indonesian cigarette producers export their products to markets like Singapore and Malaysia and comply with the strict rules there about tar and nicotine levels and health warnings.

The organization also claims that any attempt to limit the sale of cigarettes to children (49 percent of boys between the ages of 10 and 14 are daily smokers in Indonesia) will kill the industry and result in massive layoffs. This must be a joke. The Indonesian cigarette industry is a spectacular success story.

Since 1980 its production volume has increased by 300 percent, reaching 250 billion cigarettes per year. According to the Ministry of Health, the growth in the number of smokers in Indonesia is the highest in the world.

The cigarette industry also claims that any attempt to regulate the industry, like the introduction of smoking-free zones, would result in serious loss of revenue for the government. However, studies by the World Health Organization have proven that direct and indirect health costs caused by smoking are many times higher than taxes paid by the industry.

The director general of the Ministry of Health, Sampurno, estimates that in Indonesia the cost of treating smoking related diseases in 1999 was almost four times as high as the taxes the cigarette companies contributed to the state coffers.

Three of the top five causes of death in Indonesia are related to smoking-childbirth complications, heart diseases and influenza and pneumonia. An average of 57,000 deaths a year in Indonesia are attributable to smoking.

There is also some good news. Change is in the air. International financier George Soros is trying to buy the Indonesian cigarette producer Bentoel. Soros is a responsible entrepreneur who spent many millions supporting the change to democracy in Central Europe.

Consumers slowly are beginning to demand to be informed about the health risks involved with smoking. One day the Indonesian cigarette companies have to wake up and realize they can no longer buy themselves out of this mess.

Instead it may be better to agree with the United Nation Children's Fund, which has expressed grave concern that although children in many impoverished areas in Indonesia suffer from malnutrition, their fathers continue to spend money on cigarettes.

Instead of spending their money on an expensive misinformation campaign, the cigarette industry in Indonesia will one day have to realize that acknowledging one's responsibilities is a better long-term strategy than swimming against the tide.

The writer is a regional political economist at Batey Burn, a consultancy firm specializing in economic and political affairs.