Clove monopoly a setback for Jakarta deregulation

By Elizabeth Pisani
459 words
6 January 1991
Reuters News
(c) 1991 Reuters Limited

JAKARTA, Jan 6, Reuter – A new monopoly that puts Indonesia’s lucrative clove trade in the hands of President Suharto’s son is a sign that the days of deregulation of business in Indonesia may be nearly over, economists say.

"It is a major setback for free trade and deregulation," said one private economist. "It’s not a question of being against BPPC (the Clove Support and Trading Board), its a question of being for free trade."

"Deregulation is dead," commented another dejectedly.

The country’s powerful kretek, or clove cigarette, firms said on Saturday they would defy new rules obliging them to buy all their cloves from BPPC chaired by Suharto’s youngest son Hutomo Mandala Putra. Clove farmers must sell to BPPC through cooperatives at a price fixed by the government.

The country’s largest tax payers outside the oil sector, cigarette firms grouped in the trade association GAPRI are also an important source of jobs in overcrowded Java.

"We have enough stocks for at least a year. BPPC can purchase all the cloves they want. The kretek companies won’t buy them," a kretek firm executive said.

GAPRI’s defiance of the monopoly is unprecedented in Indonesia.

However, in recent years the government has pushed forward an aggressive deregulation campaign that has cut out several monopolies and opened up business to a growing private sector.

When Hutomo first put forward the plan for a new monopoly on cloves six months ago, saying he wanted to help out farmers, there was a public outcry and nothing further was heard until the new rules were announced last week.

The clove prices, set by the department of trade in consultation with a multilateral National Clove Board that GAPRI refuses to join, have yet to be published.

But sources who have followed negotiations have said the BPPC will pay farmers 7,500 rupiah a kg. BPPC will build in 2,080 rupiah in "rehabilitation" and other fees whose exact purpose is unclear.

The final cost to kretek factories, which consume around 80,000 tonnes of cloves a year or 80 per cent of Indonesian output, is likely to be 12,500 rupiah against recent prices of around 5,000 rupiah a kg.

The price would be enough to put some small manufacturers, employing around 60,000 people, out of business, GAPRI says.

"We are businessmen and can’t operate without a profit. We have to put prices up, cut jobs and maybe switch to white (non-clove) cigarettes," said the executive.

"That’s bad for the consumer, the workforce and the clove farmer."

Government officials insist the new system will benefit farmers by cutting out wide price swings in cloves.

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