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)