I think the beef import quota corruption case is going to the wrong directions. Instead of focusing about the case and the economic impact of the underlying import quota policy, most of the media’s focus is increasingly becoming on the women or the sex scandal surrounding it. I’m kinda pissed with the whole spin and I feel that I (at least) have the obligation to unpack the real issues that we should be debating instead of ‘proper’ nicknames for Javanese or Arabic girls.
Moving on. I think we firstly need to look at the structure of our beef market. Second, the implications of the import quota policy and of course, the ongoing corruption case on the beef import quota.
What needs to be in our urgent attention is that the current average price of beef in Java is about Rp. 85.0000-95.000/kg (USD 8-9/kg), and this is a significant jump from last year’s average price which is about Rp. 76.000/kg or Rp.60.000/kg in 2010. You look at the numbers (Ministry of Trade website), and you would see that there is roughly an increase of 20% in beef prices in just two years. Not normal.
Production-wise, if we look at the cattle sensus data, the number of beef cattle have shown an increasing trend. If we have an abundant of cattle why is the price so high? I need to quickly point out, provided that our data is valid, the production data shows the number of available cattle, not the number of meat available for consumption. The data that is largely missing is the number of meat stock we have in our abattoirs or traders (the middle supply chain).
We import beef in two forms: live beef cattle – so you can put them in feedlotters and make them plump (productivity counts), and frozen meat. Percentage-wise, we import about 60% of our import quota for live cattle, while 40% of our imports are frozen meat. We also limit the places where the imported beef can enter in our territory (only in certain ports), so it doesn’t disrupt the local market. You do want the poor cattle farmers to increase their welfare, no? No? You want cheap beef instead?
Now we go a bit to the rationale for the import quota. Basic microeconomics (for which I have mostly doodled during class – sorry Prof) tells us that if we have the price according to the world market (Pw), you have suppliers willing to sell at a cheaper price (and perhaps better quality too), while the local suppliers can’t compete and can only supply a small amount at that price. So let’s say the government imposes a quota and there is going to be a limit on how many beef products are available on the local market. Thus, this gives the opportunity for local cattle farmers to compete but alas, consumers might have to bear the more expensive price (Pq) as quotas affects the price indirectly. Voila, increase of producer surplus and decrease of consumer surplus, yadayadayada. The difference between quota and tariffs, the government can get the revenue from the tariff, but if it’s a quota – then whoever becomes the importers can get all the profit.
So who decides which importers can import the beef?
Now this is where the beef gets juicy (horrible pun, sorry).
In January 2013, the Corruption Eradication Commission (KPK) caught red-handed the handing over of money from Juard Effendi and Arya Arby Effendi, two executives from PT Indoguna Utama (a well-known beef importer), to Ahmad Fathanah (AF) – known to be the close acquaintance of Luthfi Hasan Ishak (LHI), the president of the Prosperous Justice Party (Partai Keadilan Sejahtera) at the time. Now the case is on trial and what is at stake is the government’s credibility in setting the import quota policy, as well as PKS’ credibility as a major Islamic party that sells itself as a clean and corruption-free party – with die hard grass root sympathizers (more on this political Islam aspect on another blog post).
But it’s not that easy for KPK as well. In order to prove that the importers paid a sum of money to AF and LHI to get the beef import quota, they need to prove that LHI in fact has an influence over the Ministry of Agriculture (with Minister Suswono, a PKS cadre, at its helm) – to give a recommendation for Indoguna as an importer – which is later decided in a coordination meeting between related ministries (i.e. Ministry of Trade and Ministry of Industry). In this meeting, apart from deciding which firms have the license to import based on the listed criteria, the government also decides the quotas – which have been decreasing for the past two years (compared to 2010).
Seeing that this is quite a challenge, that’s why KPK (along with the help of PPATK) also use the Money Laundering Law on the suspects because the burden of proof shifts to them – they need to prove that the flow of money and all the financial transactions that goes through them is legit. And this is where the “many women of AF” story gets messy and convoluted the beef import story because there’s so many unanswered flow of money that goes to these women through AF.
Since the beef import quota case is still on trial, it is too early to know whether any of the suspects are going to jail or if any other actors are going to be implicated. But what we do know now is that the whole import quota policy is based on an unreliable production data, driven by a self-sufficiency policy that is not adding any value to cattle farmers, nor giving the consumers affordable meat.
With rising income in Indonesia, you’ve got an increasing demand but you’re limiting the supply and you expect things to be cheap? Do the math.
Filed under: Economy, Politics | 2 Comments
Tags: beef import, beef quota, corruption, PKS
Some bad news and good news for the Indonesian oil and gas industry. After the unexpected ruling from the Constitutional Court (Mahkamah Konstitusi – MK) to dissolve BP Migas – the state’s regulating body for upstream oil and gas and contracts – many were left in limbo with questions regarding the status of the existing contracts and of the future of the industry as a whole. The good news is, perhaps this is could be an opportunity for governance reform in the industry. Oh and, perhaps good news for lawyers as well as their billable hours may increase.
The crux of the matter lies in Article 33 of the 1945 Constitution, in which the Court believes that with the structure of BP Migas after the 2001 oil and gas law, the state is unable to utilize its natural resouces to maximize its benefits for the welfare of the people. The Court argues that BP Migas is unconstitutional because BP Migas prevented the State from exercising directly its full authority over its oil and gas resources and with the signing of the Production Sharing Contract (PSC) the State lost its freedom to make regulations or policies contrary to the contents of the PSC.
In a way I believe the Court had a point, because BP Migas wasn’t the only regulator as contractors would still need to liaise with the Upstream Oil and Gas Directorate under the Ministry of Energy and Mineral Resources (“MEMR”). It’s cumbersome for contractors at times because you had to go to both BP Migas and MEMR anyways. Calling BP Migas as a regulating body would not be entirely correct, in my opinion. They are the executing legal entity to enter into PSCs with oil and gas contractors (and they negotiate on behalf of the government to agree on the contract’s terms).
Now, with the “tsunami” ruling that swept everybody off their feet, the government needed to act quickly to ensure that in the aftermath of the tsunami, there’s a continuity in the oil and gas industry. They issued Presidential Regulation No. 95/2012, stating that the responsibilities of BP Migas is now transferred to a temporary working unit (Upstream Oil and Gas Business Activities Implementation Unit – UPKUHM) under the direct supervision of the Minister of EMR, and all contracts will remain in effect until they expire or until such other dates may be agreed.
Thus, as Prof. Hikmahanto argued in his Kompas op-ed (do note that he was also consulted by the government during the court process), with the MK ruling, the government is actually exposed to the liabilities of the contract. He cautioned, with this arrangement in effect, the government is in hostage of potential legal problems and this beats the purpose of the “maximizing benefits for the welfare of the people” argument.
The 2001 oil and gas law is currently being revised, but with this ruling, the ideological battle is locked and the law must be revised accordingly. If I can draw on Prof. Hikmahanto’s op-ed correctly, there would be at least two options to move forward: A) nominate a state-owned enterprise to act on behalf of the government so that it can exercise its petroleum resources – i.e. Pertamina like the pre-Reformasi era; or B) a total overhaul of the oil and gas law and apply the mining licenses regime into the oil and gas industry.
Costs and benefits are a bit murky at this point of time, but we know the precedent in option A and how difficult it is in implementing option B. Pertamina isn’t exactly “clean” from corruption and that is what prompted the oil and gas law in 2001 (separation between the regulator and the operator). Meanwhile, knowing the track record of how Laws in Indonesia are legislated together with DPR, the longer the oil and gas law revision will take, the longer that the government will be exposed of the liabilities of the contracts. Not to mention whether it is truly practical to implement a licensing regime in the oil and gas industry.
Funny thing is, the group of proponents of MK’s ruling are the same proponents who proposed the 2001 oil and gas law in the first place – Islamic groups such as Muhammadiyah and Islamic political parties PAN, PKB, PPP, PK, PBB – who were dominant during Reformasi and made Abdurrahman Wahid the President (read Lin Che Wei’s analysis here).
One should be curious to understand why they would repeal what they proposed earlier – if not for dubious political motives and not for “the welfare of the people”.
Filed under: Current Affairs, Economy, Politics | 1 Comment
Tags: BP Migas, natural resources, oil and gas
For Jakartans, 20 September 2012 would be a historical day and for some, it’s a free leave day to plan your long weekend out of the city (offices in Jakarta are given a holiday for people to go out and vote). It is the day when the fate of commuters in Bogor, Depok, Tangerang and Bekasi (Bodetabek) are decided by the voice of Jakartans. Most likely it is also the day when the fate of property developers in the Bodetabek area are decided as well.
Quick count results show that Joko Widodo (“Jokowi”) won against the incumbent governor Fauzi Bowo. Many articles already point out why Jokowi stands out from Fauzi Bowo, such as this piece in NYTimes or in Foreign Policy about Princeton’s case study on Jokowi’s leadership in Solo, but I’m interested more in the level of participation of voters – only 67.35% (the first round of elections was 64.4%).
When people vote, they vote for the leaders on top, but the real impact is indirect because voters mostly deal with the street-level bureaucrats on a daily basis (diagram below). My hypothesis is that the low turnout of voters is caused by people assuming that whom they vote for won’t matter because business-as-usual in the Jakarta bureaucracy will be implemented – thus voting won’t change a thing. Personally I believe we need to persuade voters that there are leaders that can change how the bureaucracy work and they can deliver results – though there are still few in Indonesia. It is just unfortunate that in Indonesia these leaders are pre-selected by political parties and not by the people.
Technically Jokowi hasn’t won yet. The official results from KPUD needs to be announced some time in October and he has to formally resign as the Mayor of Solo (with entailed risks if he’s not permitted by DPRD). Jakartans on the other hand, are impatient and they want to see quick results (i.e. less congestion, less floods). No matter who becomes governor, it depends whether he/she can change the way things work in the bureaucracy through his/her leadership, program and policies. And this doesn’t come instantly.
Then there’s that problem unique to Jakarta. It is Indonesia’s engine of growth (see figure above from the World Bank) and it definitely attracts people from the rest of the country. What the future governor needs to realize is that policies to prevent people from coming to Jakarta is futile, because in principle, cities attract poor people. What Jakarta needs is a governor that is committed to develop its people as complete human beings (education, housing & health) and not just develop places that caters to the rich.
Filed under: Current Affairs, Politics | 1 Comment
Tags: bureaucracy, election, Jakarta, urban planning
In my early weeks of studying PP5111 – Introduction to Public Policy and Policy Analysis, we learned something called the policy cycle (sketch below). At first I took it for granted and couldn’t care less about the whole thing because it seemed so simple and logical – why would anyone need to learn about it? Well, after graduation and entering into the workforce again – and this time around being on the government side – I have come to my senses that policymakers often forget about the policy cycle. Mostly, they don’t take seriously the monitoring and evaluation part.
Theoretically speaking, policy monitoring and evaluation ensures that the outcome of the policy is directed into the right beneficiaries and if there’s anything wrong with the policy (the design, how it’s implemented, etc.), it can be corrected so the problem you’re trying to solve in the beginning gets solved, instead of creating another set of problems.
Two months into my job, the core task of our unit (apart from other tasks as well) is exactly the monitoring part – ultimately to make sure that the development programs set by the President gets delivered by the end of his period, or to report why it’s not delivered if that’s the case. The learning curve have been steep, but so far I have gained so much knowledge and lessons learned, mostly the dos and don’ts of the many policies in the Indonesian government and understanding the inherent implementation difficulties in our current institutional setting.
And so, the lack of posts in this blog for the past two months is because I’m finding it hard to squeeze the very tight amount of free time that I have into blogging. Commuting back and forth to my workplace have also taken quite a bit of energy (I don’t drive to the office and take the public transport) so during the weekends I use my time to get some Zzzz. Now I’ve finally found my rhythm and hopefully can get back to my regular blogging cycle soon.
Filed under: Politics | 5 Comments
Tags: evaluation, monitoring, policy cycle, public policy
Late last year my friend and I gave a presentation to a bank in Singapore regarding the general conditions in Indonesia. The title was “Indonesia: the Sleeping Giant of Southeast Asia”. The premise was simple, Indonesia has a lot to offer but there are many factors hindering its true potentials. Two factors that we highlighted was lack of infrastructure development and corruption.
In the Q&A session, one of the bankers asked, “Why is it that despite being the 4th largest population in the world, we don’t see many Indonesians abroad? Even if there are Indonesian scholars out there, they always go back to Indonesia”
I answered with a joke, “because Indonesians are like trained doves – no matter how far we go we always come back to Indonesia”.
Jokes aside, I tend to believe that usually Indonesian scholars abroad are divided into two: (1) those who are on scholarship and thus are bonded to return to Indonesia and contribute to the country; and (2) those who are fortunate to be able to finance themselves abroad and since their families have everything for them back home, they will return inevitably. Of course, this is a generalized statement and there are exceptions, i.e. what about those who are already rich but they altruistically want to contribute to Indonesia?
I don’t think brain drain on a massive scale is a problem (yet) in Indonesia. Yes, Jakarta is a hell hole of a city to live in, but people still work there and have other places in Indonesia as a retirement plan (i.e. Bali, Jogjakarta). If you read the newspapers, it’s rather depressing because it seems that this country doesn’t seem to run out of problems to report. Yet, there are glimpses of hope and achievement here and there – it’s just that we need to be reminded of the things that happen in Indonesia is not just in Jakarta.
My story? I’ve graduated early this May and I’m back in the country that I was born in and in love with. I managed to travel in Halmahera, North Maluku for a week (and also managed to be stranded on an island, losing contact with the boat), but now back in Jakarta. My scholarship is not bonded and initially I wanted to gain experience abroad before ultimately coming back to Indonesia, but an opportunity came up and I decided that I don’t want to miss a chance working inside the inner circle of the Republic.
Singapore will always be a chapter in my life and how the lessons that I learned while I was living there has shaped my way of thinking, especially regarding public policy. But for now, I’m back home in Indonesia.
Filed under: Blog | 3 Comments
Tags: Education, personal