Reform and the cigarette industry

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.