Agriculture Reference
In-Depth Information
tion with government officials, the favored companies controlled the distribu-
tion system (Arifin et al. 2001).
The collaboration involved 12 big companies or conglomerates obtaining
special authorization from BULOG to import rice from producing countries.
About half of these companies were affiliated directly and indirectly with
Suharto's cronies, controlling nearly 2 million tons of rice with a total value of
contracts of about US$800 million in the fiscal year of 1997/98. BULOG was
not open in its decisionmaking on quantity and quality of imported rice and ap-
pointing contractors on import. Under the nontransparent schemes of collabo-
ration with government officials, these silent operational activities were major
contributors to loss and inefficiency in the state budget.
The magnitudes and the sources of inefficiencies in BULOG were stag-
gering (Table 6.3). A financial audit report was produced by Arthur Andersen
covering the period of April 1993-March 1998. The audit process by an inde-
pendent auditor was quite controversial, because BULOG was a government
agency and the audit had to follow the standard procedures used by the state au-
ditor. In fact, BULOG enjoyed a dual status of “in-between” public agency and
private company for quite a long time. If it generated “profit,” or a difference be-
tween the revenue and cost from its trading monopoly in several commodities,
then BULOG might contribute this profit to the state revenue, although it was
included in a nonbudgetary system. However, if it experienced losses because
of improper trading practices and poor administration, then the state had to bear
the losses.The report suggested that the total inefficiency in BULOG over the
5-year period (April 1993-March 1998) was Rp 6.7 trillion or about US$400
million per year. The sources of inefficiency in BULOG were associated with
the effects of its activities in the private sector, such as unfair trading require-
ments that generated losses, which totaled about Rp 2.6 trillion. These include
almost all activities involving the private sector, such as procurement, trans-
portation, sales and distribution, and supporting services. In addition, interac-
tions with private sectors generated more losses because of illegal practices and
weak monitoring by BULOG or its officials across the country. Illegal practices
alone contributed Rp 1.8 trillion (US$212 million) to the loss.
The scope of rent-seeking also became obvious when BULOG assigned
rural cooperatives (KUDs) to take part in the state rice procurement. In this case,
KUDs had to follow certain rice requirements set by BULOG—such as 14 per-
cent water content, 5 percent broken, 5 percent unripe, and standards of clean-
liness—to be considered as a business partner in the food security business. In-
stead of fulfilling such requirements, farmers choose private channels as their
marketing outlets. Conditions became much worse during the harvest seasons,
when the farmgate price fell below the floor price because of distress sales and
over-supply. Special attention should be given to these repetitive phenomena in
each harvest season; farmers rarely benefited, probably because of their price-
