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Indonesian firms worry about changes at ports

Wall Street Journal - April 2, 1997

Jakarta – After years of living contentedly, many import-dependent businesses in Indonesia worry that changes in customs procedures could bring back the bad old days at the country's ports.

For the first time since 1985, the government's Directorate-General of Customs and Excise Tuesday regained complete control of inspecting commercial cargo entering Indonesia. This marks the end of a system of preshipment inspection conducted outside the country – a system praised by many business executives for slashing both costs and corruption. Now, cargo duties will be assessed after the goods reach Indonesia. The new method does not include a role for the Swiss surveying firm Societe Generale de Surveillance SA, which ran preshipment inspection from 1985 until 1991 and remained directly involved until Monday.

Opinions vary on how well the return to on-arrival inspection will work at Jakarta's Tanjung Priok port, which handles much of the country's sea cargo. Amirudin Saud, chairman of the All-Indonesia Importers Association, sees two types of trouble on the horizon: congestion and corruption. "Customs isn't ready for the change," he says, predicting that the port will suffer traffic jams by June or July. He says many companies boosted their imports in the first quarter of this year to stockpile supplies in case the ports get clogged. He also believes the new system won't tackle an old problem of corruption at customs. The first problem of Indonesian customs officers, he contends, is one of "mentality." The approach to clearing cargo, Mr. Saud says, is "no money, no goods."

But Soerhardjo Soebardi, director-general of customs and excise, dismisses the worries. Fears of congestion are "unfounded," he says, because preparations for the new system, which depends on shippers sending cargo data to customs by computer, have been made. Mr. Soerhardjo takes exception to the widely held view that many customs officers will see the return of their responsibilities as a license to return to soliciting bribes.

"I regret if people still think that customs will be back in the old habits," Mr. Soehardjo says. "That means they don't know what we have done for the last 10 years."

'Old habit' died

The director-general doesn't deny there will be some corruption, noting that "bad habits aren't just in customs, but in every department." However, he thinks that training, a higher caliber of staff and the "phasing out of those who had the old habit" will let customs perform much better than before 1985. Before 1985, corruption at Indonesian ports was a key factor in establishing the country's reputation as a high-cost economy. When oil companies needed a spare part, for example, they often ordered three in the hope that one would arrive.

In the early 1980s, the government gave poorly paid customs officers a tenfold raise in an unsuccessful bid to cut down solicitation for bribes. Importers often complained they needed more than 35 signatures to clear cargo, which could mean 35 payments, most of which never went to government coffers.

So in April 1985, President Suharto boldly moved to clean up the ports by cleaning out customs. He issued a decree that essentially fired, by pensioning off, nearly half of the 13,000 customs officers. In their place, the government hired Geneva-based SGS to manage a system of preshipment inspection. For most cargoes (those valued at less than $5,000 were exempted), customs officers in Indonesia ended up just looking at shipment reports filed through SGS that both confirmed the cargoes and calculated the duties owed.

The hiring of SGS, promoted by government technocrats, dramatically improved the movement of goods through Indonesian ports. That, in turn, was critical to Indonesia's success in the late 1980s in building up nonoil exports to replace income lost due to low oil prices. The preshipment inspection also boosted government revenue from import duties. Many businessmen view the 1985 decree as one of the most important "deregulation" moves made by Mr. Suharto.

Even so, some government officials and politicians lobbied for SGS's role to end on the ground that the country should handle its own customs-clearance work. Some importers, too, were unhappy with SGS, though several informal business surveys showed overwhelming support for extending the period of SGS's work.

Restoring power

In 1991, when SGS's second three-year contract was expiring, the government decided to restore most of the power stripped from the customs service; yet, it ensured that SGS continued to play a significant role. The concept of preshipment inspection was retained, though instead of being handled solely by SGS, a new company called PT Surveyor Indonesia was created. SGS had a 20% stake in that concern, the Finance Ministry took 76% and the other 4% went to PT Sucofindo, a government-owned inspection company. Surveyor Indonesia's contract ended March 31.

The Finance Ministry says the system begun Tuesday is entirely new because importers are expected to follow a "self assessment" method in which they report goods through what's called EDI, or electronic data interchange. Mr. Soehardjo says importers should take to the new system because there will be minimal contact with officials, who will spot-check some cargoes but often accept the assessment of the importers.

Mr. Soehardjo acknowledges that problems may arise because more departments and agencies are involved in handling imports than just customs, such as the state-owned company running the Jakarta port. But he's confident customs itself will perform well. "Our challenge is to prove people wrong," he says.