Bernice Han, Singapore – Indonesia's National Logistics Agency (Bulog), the state-owned food price regulator, is seen targeted by the International Monetary Fund for reform, a senior agricultural specialist based in Jakarta told Dow Jones Tuesday.
The IMF is in the midst of discussions with the Indonesian government to thrash out a multi-billion dollar aid package to shore up the economy following the rupiah's 33% plunge against the U.S. dollar since July 1. An aid package, orchestrated by the IMF, but also involving the World Bank and Asian Development Bank, is expected to be announced Friday.
The IMF is widely expected to require the Indonesian government to make some structural reforms to Bulog as part of its conditions for economic aid.
"I've heard of the rumors as well," said the agricultural specialist, who didn't want to be identified.
Bulog has long been seen as the symbol of President Suharto's reluctance to make hard choices on deregulation and economic reform. It was created more than 40 years ago to ensure food security and price stability for Indonesian farmers and consumers.
The body holds the sole import monopoly on rice and rice flour, white sugar, soybeans, garlic, wheat and wheat flour, onions, garlic, leeks, cooking oil and other commodities.
When local prices of essential food commodities such as cooking oil and rice rise above what Bulog deemed as excessive levels, the agency intervenes by selling the commodities at below prevailing market prices.
Bulog didn't respond to repeated telephone calls from Dow Jones.
No one was able to confirm if Bulog will be phased out altogether or simply have its trading monopoly in key commodities removed, said the agricultural specialist.
"But Bulog is a very visible structural body and the IMF and World Bank have consistently told the Indonesian government that it has to be phased out," she said.
In a recent report, the World Bank criticized regulations which still distort prices and business opportunities, thereby increasing costs and causing losses in efficiency as resources become attracted to protected activities.
Now that Indonesia has requested economic aid from the IMF, the time may be right to apply pressure on the government to reform Bulog, the agricultural specialist said.
A severe drought afflicting the country, believed to be brought about by the El Nino weather pattern, is causing a growing food shortage and thereby driving up food prices.
The drought may make the role of Bulog more important than ever, said the agriculture specialist, referring to the agency's role in ensuring food stability and prices.
Indonesian agricultural production is already down about 10% overall this year, according to sources at its Ministry of Agriculture.
For instance, Indonesia's 1997 paddy rice production is estimated at 49 million metric tons, down two million tons from the previous year, while coffee production is expected to be 40% lower at 270,000-300,000 tons.
According to trade sources, Indonesia is likely to import as much as 1 million tons of rice for calendar year 1998.
El Nino is a warm weather phenomenon which typically lasts 12 to 15 months and brings dry weather conditions to the Pacific Rim countries.
Although it still maintains its trading monopoly in key commodities, Bulog has already undergone some structural reforms, said the specialist.
In early July, Bulog had its monopoly on the import of raw sugar partially removed as part of a new government deregulation package. The country's sugar producers, which use raw sugar as raw materials, are now allowed to import raw sugar directly for manufacturing and export. Prior to that, only Bulog was allowed to import raw sugar.
"To its credit, Bulog has actually gone through some reforms," she noted.
If it's true that Bulog is being targeted by the IMF for reforms, said the agriculture specialist, then the key questions should be: "Is Bulog going to be eliminated, be phased out eventually or be made accountable to the Ministry of Finance?'
It's a dilemma for the Indonesians, said a Singapore-based economic analyst with an international research organization.
"Bulog's importance is bigger because of the drought, yet at the same time it's a drain on government fiscal resources," said the analyst, who didn't want to be identified.
The government has projected its budget deficit this fiscal year could reach 9.2 trillion rupiah because of the economic slowdown, said the analyst. The Indonesian fiscal year runs from April to March.
The analyst said the government recorded a budget surplus of around 812 billion rupiah during the 1996-97 fiscal year.
"So Bulog could be a further strain on the government," he said. "But the pledge of aid from other countries may lessen the chances of Bulog being scrapped.'
Australian Prime Minister John Howard said Wednesday he had reached an agreement in principle with Suharto to extend financial aid, subject to Indonesia meeting the IMF requirements. The amount hasn't been decided yet.
Japan has also agreed to offer aid as part of a wider IMF support package, while Indonesian State Secretary Moerdiono reconfirmed that Singapore had offered to give the country $10 billion in aid. Malaysia also offered Indonesia a $1 billion standby credit facility to help the country overcome its currency crisis.
"The Indonesians may not need to depend too much on the IMF because of the aid," said the analyst, referring to the pledge of aid from Malaysia and Singapore.
Bulog will probably be phased out gradually, he said.
[Joyce Teo in Singapore contributed to this article.]