Sticky business
Sticky business
It seems to be the National Logistics Agency's (Bulog) turn
now to get its hands sticky helping the state-owned IPTN
aerospace company. The agency has agreed to buy about 110,000
tons of glutinous rice while Thailand is in turn to procure two
CN-235 airplanes from IPTN. That means Bulog will have to spend a
large part of the subsidized loan it is getting annually from the
central bank to pay for the counter-trade deal.
The counter-trade deal currently being hammered out between
Bulog and IPTN and Thailand reminds us of the counter-purchase
policy Indonesia introduced in 1982. The policy was launched when
the country's balance of payments was under severe pressure. It
required foreign suppliers to buy Indonesian commodities
equivalent in value to the goods they were selling to government
and state company-funded projects. The external balance in the
early 1980s had reached such a critical state that the policy was
followed in 1983 by the shelving of billions of dollars worth of
projects and the devaluation of the rupiah. All these measures
were designed to curb import growth and, at the same time, boost
exports.
The counter-purchase policy was administered by the counter-
purchase section at the export directorate of the trade ministry
which regularly announced the export commodities available for
purchase by foreign bidders of government projects. Obviously,
the policy angered foreign companies because most foreign bidders
for government contracts had no experience in selling items such
as rubber, coffee, or plywood. No wonder the policy failed to
increase exports much. Since the late 1980s we have heard
virtually no more of counter-trade transactions.
Counter-trade takes several forms: Pure counter-trades,
counter-purchases, offsets, barters, switch-trading and buy-
backs. But all these transactions are very complex processes
because they require arduous negotiations and involve more than
two parties. Therefore such a deal is generally struck as a last
resort. That is why, for example, we would not be able, even if
we tried very hard, to trade in our CN-235 planes for soybean
from the United States of which we need more than 500,000 tons
every year. Only countries extremely short of foreign exchange
will contemplate such trades. In the 1980s, for example, counter-
trades were made mostly by countries in eastern Europe.
Counter-trade deal also requires sellers to offer generous
price discounts to offset the additional costs of transactions.
high insurance premiums, brokerage fees etc. In view of its
complexity and high transaction costs, a counter-trade deal very
rarely generates repeat orders.
Most manufacturers avoid selling their products through
counter-trade not only because of the complexity and the costly,
time-consuming negotiations involved but also due to the
unfavorable impression made about the merchandise involved. Goods
sold under such a barter-like deal are tainted with the stigma of
being unable to compete in the open market.
Having pointed out the disadvantages of counter-trades, we
wouldn't want to suggest that the counter-trade deal which will
involve Indonesia's purchase of 110,000 tons of glutinous rice
from Thailand in return for the sales of two CN-235 planes is
entirely negative. But we do feel that the transaction will carry
additional costs.
The deal will force Bulog to order a huge amount of glutinous
rice -- equivalent to more than 18 months of consumption. It is
important to note that it is not glutinous rice, but ordinary
rice, that is the national staple and heavily weighs in the
consumer price index. Glutinous rice is used mainly for cakes.
Though the delivery of the glutinous rice can be scheduled
according to need, Bulog will eventually have to swallow all of
the imported sticky rice. It doesn't have the option, for
example, to replace the glutinous rice with ordinary rice in case
of poor harvests, for example.
Yet while Bulog gets its hands sticky with glutinous rice of
doubtful use, the state IPTN aerospace company is making the
sales it is desperate for. It is a pity that IPTN has failed to
lobby for export credit financing which is crucial for promoting
airplane sales. Hopefully, the two CN-235s will perform well
enough in Thailand to generate new orders; this time, hopefully
placed as normal business transactions.