RI urged to end monopolies

RI urged to end monopolies

JAKARTA (JP): Economists from the World Bank advised the Indonesian government yesterday to gradually remove monopolistic practices from the country's industrial sector, saying the practices adversely affect both efficiency and consumers.

"The competitive pressure on domestic industries from import competition has been kept at a relatively low level...the cost of this gradualist approach to Indonesian consumers and the efficiency loss has also been high," Guozhong Xie and Oscar De Bruyn Kops said yesterday.

The analysts made the observations in a joint paper presented on the third and last day of the World Bank-sponsored seminar on deregulation at the Borobudur Hotel here.

One result of persisting monopolistic practices, according to the two economists, was that, in 1993, Indonesian firms paid US$10 billion more for their intermediate inputs than they would have at international prices, even under today's more open trade regime.

Guozhong and De Bruyn Kops focussed on the cement, paper, steel, fertilizer and sheet glass industries in their joint study, which is entitled Clogged Distribution Channels: Marketing Practices (in) Industrial Commodities in Indonesia.

The two experts also touched on the plywood, pulp, garment and wheat sectors in the paper.

One conclusion inferable from Guozhong's and De Bruyn Kops' paper is that the surveyed industrial commodities are all priced, marketed, distributed and even produced in monopolistic or cartel-like ways, rather than in accordance with the more efficient market mechanisms.

Their paper also showed that such monopolistic phenomenons occurred because of government policies originally intended to protect small producers and state-owned enterprises and to control price fluctuations.

"The case studies for this paper suggest that markets in Indonesia are subject to extensive government interventions and private-sector anti-competitive arrangements that are sanctioned and sometimes even enforced by the government...", the two delegates concluded.

Distribution

Guozhong and De Bruyn Kops also said that the monopolistic practices had resulted in inefficient and monopolized distribution systems which had strengthened some private producers.

Those producers, they said, had become powerful enough to charge retail prices without regard to the government's original aims. They cited the wheat flour, fertilizer, plywood and cement industries as examples.

"As a whole, the cement market arrangement creates a distorted playing field in favor of existing producers, especially large- scale large private sector firms," they argued in their paper.

On wheat they said: "The distribution cost is over 40 percent of the factory-gate price...The high distribution cost reflects the fact that the industry is a government-sanctioned private monopoly which also dominates downstream industries."

The analysts added that the high distribution cost of plywood -- which they put at 68 percent of the factory-gate price -- was caused "by the industry association which acts similar to a market monopoly."

Guozhong Xie and Oscar De Bruyn Kops said that Indonesia, which they said had a very successful development program despite the various market distortions, must allow more competition to make its firms more responsive to market changes in the increasingly integrated global economy.

That call was echoed by local economist Djisman Simandjuntak, who spoke at yesterday's session.

Djisman argued that, to anticipate the implementation of new international trade regulations, Indonesia "is well advised to prepare itself for this eventuality."

"However, the purpose of reducing the incidence of unfair business practices... is better served through deregulation, at least in the foreseeable future," Djisman said in his presentation. (hdj)