Agriculture Reference
In-Depth Information
Reforms and Transitional Complexities
After being in the business of price stabilization and food security for three
decades, BULOG enters a transitional period of change and complexity. The
fall of Suharto in 1998 and the government's binding letter of intent to the IMF
have changed trade policy in rice. The linear and command system adopted in
the past three decades also changed as BULOG lost its monopoly power. How-
ever, the process of openness in rice trade promoted by the IMF has presented
serious challenges, because the liberalization strategy has failed to strengthen
the institutions involved in the rice business. The liberalization in rice trade pro-
moted by the IMF was generally accused of contributing significantly to the
failure of rice production and distribution systems as Suharto's successor, Pres-
ident B. J. Habibie, faced serious problems of establishing a solid foundation
for reforms, let alone providing economic linkages to increase productivity at
the farm level. This section provides a brief account of the complexities that the
government has confronted with reforming BULOG.
Table 6.4 provides a summary of the direction for reforms on food policy
in the country, including experiences in liberalizing the trade of rice, improving
targeted market intervention for food security and price stability, and changing
BULOG's status from a regular nonministerial government agency to a state-
owned enterprise. These reforms have a common long-term objective of strength-
ening the development of private trade in rice marketing in Indonesia. Clearly,
it is not easy to achieve the final outcome of the reforms in the food and agri-
cultural policy because of the transitional nature of political and economic re-
forms in the country.
Immature Trade Liberalization
Major changes in food policy took place in 1998 at the peak of the economic
crisis, just after Indonesia signed a binding agreement with the IMF on eco-
nomic and financial reforms. One of the conditions was that rice imports be lib-
eralized, removing BULOG's monopoly on rice trade. At first the reform was
well received, because it indicated an end of the rent seeking from BULOG's
monopoly by Suharto's power circle. However, public support of trade liberal-
ization diminished when rice production and people's welfare failed to improve
significantly. This failure was partly attributed to the fact that the liberalization
strategy was not complemented with efforts to strengthen the economic insti-
tutions involved in the rice market and food policy implementation.
Since then, the average volume of rice imports has remained high, aver-
aging more than 1 million tons, implying that Indonesia has become more de-
pendent on rice imports. The effects of El Niño 1997/98 and La Niña 1998/99
on rice production were so strong that production remained low for a number
of years, and the country could not meet the growing demand for rice. Rice pro-
duction in 2002 was 51.4 million tons, or 4.5 percent below that recorded in
