The panic buying

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.