The panic buying

The government's strong and fast move to flood the market with stocks of basic necessities is indeed the most effective way of coping with the panic buying in several cities which was triggered on Thursday by the collapse of the rupiah's exchange rate against the American dollar to more than Rp 10,000. Such a frenzied pace of buying, if it continues unabated for just a few days, would wrench a much more devastating impact on the economic, social and political stability of the country than the plunge in the rupiah's exchange rate would likely pose. Scenes of long lines of buyers at shops are the making of a national crisis.

Nonetheless, consumers cannot be blamed for having been so easily incited into such irrational action. The economic and political situation, especially since October when the rupiah started its steep plunge, has been in such a shaky state that rumors abound every day. Rumors often allow people to cope with the uncertainties of life by providing structure in an uncertain situation.

The foundation or seeds of a rumor are planted when events such as the current economic crisis and the upcoming succession of national leadership are so important, while news or information is lacking or ambiguous. Rumors explain things and relieve the tension of uncertainty, especially when some new events cannot be understood on the basis of established assumptions. There is certainly a lot of tinder around and a rumor, however, wild and irrational it may be, could easily become the spark.

Worsening the market jitters is the annual phenomenon whereby purchases of consumer goods usually increase by up to 20 percent during the annual Ramadhan (Moslem fasting month) and the Idul Fitri holidays later this month. The highest monthly general price increase also occurs in that month. Unfortunately this year market sentiment has been further damaged by the impact of the El Nio-induced drought which is affecting most food crops. The steady fall in the rupiah's value against the American dollar has been fueling sharp rises of as high as 30 percent in the prices of such imported food items as wheatflour, soybean, milk and sugar.

Despite all these unusual phenomenons, what took place on Thursday where even nervous rich men and women were seen carrying bags of rice, sugar and other basic food items and loading them into their luxury cars parked at supermarket premises was nothing other than panic buying. What most consumers did on Thursday was not simply purchase large amounts for fear of further price increases, but was already panic buying to the point of hoarding for unreasonable concern that basic food items might soon run out of stocks.

However, the inundation of the market with such basic food items as rice, wheatflour, cooking oil, and sugar, though quite necessary, is not enough to prevent another bout of panic buying. The government should act equally firmly and consistently to facilitate the smooth distribution of goods across the country.

President Soeharto repeated in his Jan. 6 budget speech the crucial importance of removing all kinds of barriers to the smooth flow of goods through air, land and sea transportation. Such a directive has been issued many times every year over the past 30 years. But lorry and bus drivers have always complained about the numerous illegal payments they have to make at police check points. Shippers and forwarding companies are also complaining about such illegal payments they have to give officials to avoid "harassment". The bitter fact is that such official extortions tend to increase precisely during the Ramadhan month and the run up to the Idul Fitri holidays.

The government has taken precautionary measures, including importing, to ensure adequate stocks of such food items as rice, wheatflour, sugar and cooking oil. For example, the National Logistics Agency has ordered two million tons of rice from Thailand, Vietnam and other Southeast Asian countries to supplement domestic production. Exporting crude palm oil and its derivative products has also been banned. The government also is still subsidizing the prices of imported food items to curb skyrocketing price rises as a result of the rupiah depreciation.

What is urgently needed are firm and consistent measures to prevent speculation and hoarding by profiteering businesspeople. Such measures, however, should be done in a fair and transparent manner to prevent market distortions which are anyway equally as damaging as the speculation itself. The government needs to act strongly and consistently against quasi monopoly and oligopoly in the production and trading of several essential commodities which have long been complained about by small businesspeople and analysts.