Smuggling into Indonesia from neighboring countries still rife

Hanys Salmi, Kuala Lumpur

The recent discovery at Jakarta's Tanjung Priok Port of more than 55,000 metric tons of illegally imported sugar reminds us of the need to streamline the Indonesian import-export system, especially as regards trade with neighboring countries such as Singapore and Malaysia.

The main issue is not the sugar itself -- since this is but a very simple example -- but the corruption and black marketeerism involving well-connected Indonesian traders and their partners in the rest of Southeast and East Asia, who have been making big profits through the support of officials in a number of Southeast Asian countries over the past 30 years.

According to a business intelligence report leaked recently in Kuala Lumpur, over the past decade Indonesia has been losing between US$560 million and $660 million annually in customs and excise duties due to smuggling between Indonesia and Singapore alone, not to mention the losses caused by Indonesia's black market transactions with the rest of the Southeast Asian nations.

In Malaysia, analysts have begun to pay serious attention to Indonesia's burgeoning black market transactions with neighboring countries, which have greatly increased since the onset of the reform era given the fact that the government in Jakarta is unable to eradicate corruption in its international trade sector.

The business intelligence report shows that up to 67 percent of the main actors in the Indonesia-Singapore black market network are companies owned by Indonesians, either based in Indonesia or elsewhere, while the rest are companies based mainly in Singapore, or based elsewhere in the region but using Singapore as their main port for shipping.

Apart from the unscrupulous behavior of some private sector actors, one of the main reasons that encourages smuggling to flourish is the maintenance of a formerly secret Singapore- Indonesia high-level arrangement that began in 1974 when the Soeharto regime needed a lot of "tactical" funds. Even after the despot had stepped down and B.J Habibie took over, this area was left untouched with Habibie turning a blind eye to this hidden source of funds.

This was a time that saw the Indonesian military being pushed of the main stage against the backdrop of a budgetary crisis. As a result, the military was prepared to do whatever it took to retain the level of privilege and comfort it to enjoy during the Soeharto era.

During Megawati Soekarnoputri's administration, her trade and industry minister, Rini Suwandi, has championed a drive for regional market transparency, forcing Singapore to adopt greater openness in trade transactions. However, the results to date have been disappointing. Singapore seems unwilling to terminate the practice once and for all given the huge trading volume involved.

Since 2002, the difference in official bilateral trade figures produced by the Singaporean and Indonesian governments has stood at an average of 40 percent. As an example, in 2002 alone there was a discrepancy of $5.6 billion in annual trade figures with Singapore putting its non-oil imports from Indonesia at $7.41 billion against the $4.6 billion reported by Indonesian statistics agency, the BPS.

In a "Confidential Note", Singapore put its non-oil exports to Indonesia for the year 2002 at $5.25 billion, compared to only $2.44 billion as reported by the BPS.

There is no other explanation for this than that the discrepancy represents the amount of goods smuggled through Singapore. Indonesia does not figure in the list of 149 trading partners given in the official Singapore trade statistics. Nevertheless, if the confidential data on the volume of transactions taking place in the "secret market" is included, Indonesia should be in sixth place, a ranking that should not surprise anybody due to the size of Indonesia's economy, according to regional analysts.

Strangely, Singapore persists in denying that the vast difference has anything to do with smuggling. It argues strongly, if not convincingly, that this is a mere accounting anomaly. Given the size of the discrepancy, I am amazed that Indonesian reformers have not gone all out to highlight and eradicate graft in this sector.

If Indonesian reformers really wish to eradicate corruption, they need to launch a movement designed to make Singapore understand that it is unfair to conceal the truth. Otherwise, the revenues that should go to the state treasury will continue to feather the nests of the Indonesian and regional smugglers, who are mainly involved in the retail and electronics sectors.

Perhaps one way to reduce the abuses that are taking place would be for the Indonesian government to encourage its traders to use Malaysia's Port Klang, which is a tough competitor for Singapore today and currently has three terminal operators. Other major ports include Penang, Johor Port at Pasir Gudang, Kuantan, Kemaman and Bintulu.

Apart from these, there are ports in Sabah and Sarawak. Also, the operation of the Port of Tanjung Pelepas is a key feature in the Malaysian government's attempts to overcome the fact that an estimated two thirds of Malaysian container traffic "leaks" through Singapore. There are nearly a dozen feeder services from Port Klang to Singapore.

What Indonesia needs today is the diversification of its traditional shipping routes, many options for which are now available in Malaysia. In this way, the government in Jakarta could ascertain the real volume of bilateral trade with both Malaysia and Singapore, and not depend solely on Singapore as its port of transit in Southeast Asia.

Apart from that, the question of law enforcement is certainly a must. News reports have indicated that Indonesian officials at strategic ports of loading are deeply involved in corruption through the sophisticated falsification of documents that keep Singapore officials happy. They turn a blind eye to unregistered imports and thereby encourage smugglers to intensify their operations.

This is a subject that Indonesian reformers need to campaign on if they really wish to promote competitiveness at home and business transparency in the region, collect sufficient revenue for their state treasury and reduce the country's heavy reliance on foreign aid.

The writer is a researcher on Indonesian issues at a Kuala Lumpur-based company. He can be reached at hanyssalmi@malaysia.com