Scrapping of clove monopoly ‘good for farmers’

FINANCIAL TURMOIL IN INDONESIA

The “sacred cows” of the Indonesian economy – the national car project, IPTN airline projects and Bulog’s monopoly – suffered severely as Jakarta agreed to sweeping reforms.

DERWIN PEREIRA checks out with analysts in Jakarta on their perceptions of the latest announcements and their likely effect on the national economy.

* SMOKE OUT ———–

THE IMF-dictated reforms to eliminate the clove monopoly will be a boon for Indonesian farmers.

Analysts said the monopoly, headed by Mr Hutomo Mandala Putra, bought cloves from farmers at a low price and sold them to manufacturers at a higher price.

“The main problem was that the excess profits never went back to the farmers. This reform is aimed at addressing such concerns,” said economist Umar Juoro from the Centre for Information and Development Studies.

Observers believe that the creation of the monopoly in the early 1990s affected the ruling Golkar party’s electoral performance in the 1992 polls.

Mr Umar said the monopoly, known as the Clove Marketing Board, borrowed more than 800 billion rupiah (S$233 million) as credit from Bank Indonesia to buy cloves from farmers and for distribution to produce distinctive clove cigarettes called “kretek”.

“It was a wasteful activity and it will be good to recover the money lent to the monopoly,” he said.

He said the state-sanctioned monopoly was set up with the aim of helping clove farmers get a better price for their crops.

But the scheme was fraught with mistakes and the monopoly burdened with a huge stockpile of cloves since the monopoly’s formation.

To reduce this load, the government approved new rules which required some clove cigarette makers to buy more spice. The decree raised the amount of cloves that large cigarette companies must have in stock for every stick they produced.

The new ruling burdened operations. The tax changes and the introduction of the clove monopoly rocked the kretek market in 1991.

Both policies forced up retail prices and in turn led to major shifts in market shares. Some analysts said the IMF reforms, while benefiting farmers, could push up cigarette prices in the long run.

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