Subsidy removal will not jack up prices: Experts
Subsidy removal will not jack up prices: Experts
JAKARTA (JP): Removal of subsidies on wheat flour, sugar and
soybeans is the right move and will not significantly impact
consumers because the commodities already sell at market prices,
experts and businessmen said Thursday.
But the associations of food and beverage entrepreneurs and
sugar and wheat distributors urged the government to allow the
State Logistics Agency (Bulog) to import the commodities -- at
prevailing market prices -- to prevent a possible drop in
supplies.
Economist Didik J. Rachbini of the Institute for Development
of Economics and Finance argued that the subsidy removal --
announced Wednesday and effective immediately -- would not jack
up prices, particularly for wheat flour.
"The wheat flour price may increase, but it will not be very
high because the price after the last increase was already almost
as high as the international price," Didik told The Jakarta Post.
H.S Dillon of the Center of Agriculture Policy Studies
concurred, saying the market was aware of the decision since
April when the government agreed with the International Monetary
Fund (IMF) to end the subsidies.
"Since then the market price has increased, so it is not
likely to go up again," Dillon said.
Bulog increased the price of wheat flour beginning in January
in line with the government's program to phase out the subsidy.
The price was increased by 86 percent in July and 46 percent
in August to Rp 3,290.
According to the agency's projection, wheat flour will sell at
Rp 4,000 (37 U.S. cents) per kilogram with the subsidy
elimination.
The chairman of the Federation of the Association of Sugar and
Wheat Flour Distributors, Ishadi, estimated that the wheat flour
price might increase to Rp 82,000 per 25-kg sack by next week
after old stocks are finished, up slightly from the current Rp
80,000.
The chairman of Association of Food and Beverage
Entrepreneurs, Thomas Dharmawan, said Bulog should continue to
import wheat flour, sugar and soybeans until general importers
were ready to assume its role.
He argued that Bulog's sudden withdrawal from the market could
disrupt supplies of the commodities.
"Therefore, Bulog must still be able to import them but must
act purely as a trading company," Thomas said.
Bulog's sole right to import wheat, sugar and soybean ended on
Wednesday with the lifting of the subsidies.
The agency retains the monopoly on the import of rice, which
is also the only subsidy retained by the government.
Thomas said wheat, sugar and soybeans must be bought for
import in large quantities of at least 10,000 tons.
A company would need between US$3 million and $4 million for
the import, he said, adding that the high transport cost would
serve to push prices up.
Thomas said most companies would be unable to obtain the
capital to import the commodities directly because the
government's credit crunch sent interest rates soaring.
To help importers and lower prices, he urged the government to
lift all value-added taxes on the imports of the commodities
after the subsidies were lifted.
Didik said the subsidies on both wheat flour and rice had put
a burden on the government, which was left making a choice
between the two.
"Rice is more important than wheat flour for our people," he
argued.
Didik said some of the country's private companies had the
resources to import wheat, but were probably reluctant because
they had enjoyed the subsidy for a long time.
He and Dillon cited PT Bogasari Flour Mill, the country's
biggest wheat milling plant.
"I think Bogasari must import wheat, otherwise it will not be
able to continue operation," Didik said.
PT Bogasari Flour Mills, owned by the giant Salim Group, held
the right to mill wheat imported by Bulog for 25 years.
The company is controlled by former president Soeharto's crony
Liem Sioe Liong. (das/gis)