Agriculture Reference
In-Depth Information
TABLE 6.2
Annual costs and benefits of rice price stabilization in Indonesia
Annual cost
Annual benefit
Development plan
(1991 US$
(1991 US$
(period)
millions)
millions)
Remarks on benefits
Pelita I (1969-74)
30
300
About 1% of GDP growth
Pelita II (1974-79)
40
270
About 0.61% of GDP growth
Pelita III (1979-84)
80
—
Share of GDP growth was high
enough that the economy enjoyed
rice self-sufficiency
Pelita IV (1985-89)
80
—
Share of GDP growth declined as the
economy restructured
Pelita V (1989-94)
90
180
About 0.19% of GDP growth;
Indonesia adopts the policy of self-
sufficiency on trend
Pelita VI (1994-99)
—
—
Economic crisis in mid-1997; Suharto
quits in May 1998
SOURCES
: Adapted from Pearson (1993) and Timmer (1996, 2001).
NOTES
: — indicates not available. GDP, gross domestic product; Pelita,
Pembangunan Lima Tahun
[Five-Year
Plan].
tain BULOG as a cost-effective agency, Indonesia had to reduce the amount of
rice distributed to the Budget Groups (civil servant and military) and the market
operation program for the special target group of poor consumers.
Thus, at least in the early years, the contribution of BULOG was not in-
considerable. Timmer (1996) estimated that rice price stability increased over-
all growth by about 16 percent during 1969-74; 14 percent for 1974-79; and 4
percent during 1989-91 over what would have been otherwise. The benefits
dwindled and the costs became larger and larger. A policy that was initially cost-
effective gradually became cost-ineffective.
Special Interests
The influence of special interests became obvious in the 1990s. Their presence
was reflected in the practice of interlocking mechanisms between government
and/or political elites and private sectors; nontransparent government decisions
in rice import processes; and closed-door appointings of rice importers. Big
conglomerates, such as the Salim Group, and former President Suharto's cronies
dominated rice importers and importing activities. These companies generated
economic rents and excessive profits from trading fees of as much as US$10-15
per ton, in addition to benefiting from the price differences between the world
market and the fixed contract price set by the government. Large rice imports
meant large economic rents. Under these nontransparent schemes of collabora-
