WB opposes govt plan to raise rice import tax

JAKARTA (JP): The World Bank opposed on Friday the government's plan to raise the rice import tax because it would disadvantage the country's poor.

World Bank country director in Indonesia Mark Baird said that the relatively low domestic rice prices enjoyed by the poor now had been supported by access to cheaper imported rice.

"Therefore, from the poverty point of view, we are concerned about recent press reports suggesting that import controls or higher taxes may be reimposed on rice," Baird told a business gathering.

Baird said that around 50 percent of Indonesia's more than 200 million population were living in poor conditions, and that the poor spend about 25 percent of their income on rice.

"So lower rice prices are definitely a pro-poor policy," he said.

The current tax on rice imports is 10 percent. The government imposed a 30 percent tax at the beginning of the year but reduced it in April following a protest from the International Monetary Fund, which is providing the country with multi-billion dollar loans.

Previous reports said the government was planning to raise the tax to prevent the country from being flooded with cheap imported rice and to protect rice farmers.

The government is also planning to increase the floor price of unhusked rice to protect farmers.

Baird said that the measure would have a serious consequence on the state budget.

"We are unconvinced that a higher floor price to farmers is justified or affordable given current budget constraints," he said.

The government set the floor price for unhusked rice in 1999 at between Rp 1,400 and Rp 1,500 per kilogram, but a surge of cheap rice imports from Thailand and other neighboring countries has pushed prices down to between Rp 700 and Rp 900 per kilogram.

Baird also said that the government must continue to gradually lower fuel subsidies although it would definitely have an impact on the poor.

But he said that the poor only consumed a small amount of fuel compared to richer families.

He said that fuel subsidies created a heavy burden on the state budget.

He also said that the fuel subsidy was causing massive smuggling of the commodity out of Indonesia.

The government has reduced fuel subsidies this year, and is planning to make another reduction in April next year.

On inflation, Baird said that it could be contained within the 8.0 percent to 10 percent range this year with "a relatively conservative monetary policy and regain investors's confidence."

"Low inflation is one of the best pro-poor policies that you can have because the poor are able to protect themselves from rising prices," he said.

"There have been some recent increases in inflation due to adjustment in administered prices and the rupiah depreciation," he added, referring to the recent fuel, electricity rate hikes.

Baird said that regaining investors' confidence" would lead to a stable and possibly appreciating (rupiah) exchange rate".

The rupiah has been under strong pressure over the past few months due to a combination of external factors and domestic political troubles.

The exchange rate of the rupiah is currently hovering at around Rp 9,300 per U.S. dollar, which is around 23 percent lower than earlier this year.

A low rupiah value causes higher prices for imported products. The country's manufacturing sector is still heavily dependent on imported raw materials. (rei)