Cooking Oil and Food Task Force

The latest development in the government’s measures to crack down on cooking oil hoarders reminds me of the time I was still in elementary school (SD). This was during the era of President Soekarno.

The economy was then run under various regulations. The government determined the prices of staple foods. Raw materials for batik and textile factories, such as mori (white cotton fabric) and thread, were tightly rationed. Those who were found to be in violation of the regulations and caught hoarding supplies were liable to punishment. The market was not left to regulate its own mechanism.

Raw materials for manufacturing were rationed because the supply always fell short of the demand. Imports and several other business activities required special licenses that were not easy to obtain. As a result, buying and selling licenses on the black market was rampant.

To manage the regulated economy, a special unit called polisi Ekonomi (economic police) was formed, which is reminiscent of today’s satuan tugas (satgas) pangan (food task force) under the National Police (Polri).

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At that time, entrepreneurs were always wary about not being caught "hoarding" raw materials, materials that were in fact needed to maintain continued production.

Inevitably, there seemed to be a game of cat and mouse between businessmen and traders on the one hand and with the police on the other. Entrepreneurs quite often fell prey to extortion by the authorities and had to pay “tributes” if they did not want to be interfered with. Production costs automatically increased. This situation was maintained until the first half of the 1960s.

As we all know, the overregulated economy ultimately failed miserably. Goods remained scarce and inflation swerved uncontrollably to reach even hundreds of percent per year. I remember merchants carrying transistor radios with them wherever they went, just in case the government made a crucial announcement.

The government of the time very frequently came up with new regulations almost every week. Each time (then-president) Bung Karno finished delivering a speech, prices shot up. I remember president Soekarno, who did not have a knack for the intricacies of the economy, being interviewed by a reporter for the United States’ CBS. Asked about the chaotic Indonesian economy, he told a throng of foreign journalists to take a tour around Jakarta. The president told them they would see for themselves that people were still eating in every corner of the city. That was the simple thinking of our president at that time.

‘Jokowinomics’

Of course, the situation has changed now. Even our market economy tends to go too far. We have experienced market distortion several times, with the most recent case being the lack of cooking oil and soaring prices. The same is true for soybeans, the main ingredient of tempeh, which is the people's favorite food.

Previously, beef prices soared. So did that of chicken and other basic needs. Not long ago, the trade minister decided to import rice at a time when the domestic stock was experiencing a surplus. Eggs also flooded in when the domestic supply was abundant. Farmers suffered because the selling prices of their crops fell. An egg producer was seen destroying and throwing away a rack of eggs they had harvested as a form of protest.

What is happening? The laws of economics have not changed. When demand exceeds supply, prices will go up. On the other hand, when supply is abundant, prices will fall. One of the important tasks of government in the modern economy is to maintain price stability by ensuring that supply and demand for goods are kept in balance.

The volatility of cooking oil prices proves that. The supply of cooking oil has disappeared from the market, which results in rising prices.

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The case of cooking oil is particularly unique. In the country that is the largest palm oil producer in the world, producing enough for every citizen to bathe in cooking oil every day – if they wanted, the supply is down and prices are soaring. What went wrong? The answer is simple. Producers prefer to export their crude palm oil (CPO) rather than selling it locally because the export price is much higher than the government’s price set for local needs.

What is the government's conclusion? A mafia is behind the rise in cooking oil prices. A cartel is playing games. Therefore, the 1953 law on hoarding goods and the 1955 law on economic crimes must be enforced.

The police swiftly followed up on the President's instructions. So far, we can't say for sure whether there are rogue producers or cartels that have deliberately withheld supplies in order to raise prices.

What the government views as “hoarding” (criminal violation) probably does not exist. What exists may be hoarding to maintain the certainty of CPO supplies for processing. However, if there really are hoarders, will using the police and ensnaring them with criminal charges solve the problem? Will the next government involve the police to manage our economy, like in the 1950s?

Empowering the KPPU

As far as we have observed, in almost any place in the world, no government allows the market to operate without control. The government takes care to prevent market distortions. If the market is left completely uncontrolled, what happens is that the market becomes dominated by strong capital or a cartel conspiring to determine prices.

This applies to almost all types of markets, be they a goods, commodity, capital, or money market. Basically, entrepreneurs, whether they admit it or not, look to make as big a profit as possible. This greed-driven market that can harm the consumer society should not be tolerated. However, a mechanism that involves the police is not the way out.

The police should not be given additional duties beyond their main duty of maintaining safety and protecting the people from security threats. If the police are involved, there will be business uncertainty. Entrepreneurs with good intentions can also suffer the impacts. Opportunities for collusion and corruption can also become greater. In the end, the government's goal of controlling inflation and the scarcity of goods will not be achieved.

To avoid monopolistic tendencies in controlling the market, we already have Law No. 5/1999 on business competition, along with the Business Competition Supervisory Commission (KPPU). What remains now is how to make the KPPU perform more effectively. To avoid market disruption by entrepreneurs who hoard, the government needs to conduct market operations so that entrepreneurs intent on playing with market prices will be hit and think twice about doing the same thing in the future.

If necessary, the government must buy up CPO and sell it under a subsidy to the people's cooking oil industry. The deficit in the price of subsidized CPO can be offset by increasing the CPO export tax.

However, a market operation will only be effective if the government has a good and consistent planning system, and its apparatus is able to provide accurate and timely data on estimated market demand and supply in both the medium and the long term. What is happening now seems to be that the market is catching the government unawares many times because the data from various ministries that provide the basis for making policy decisions have turned out to be inaccurate.

The important thing is that we should not go back to the 1950s by involving the police to manage our economy. History has shown that such a measure will fail.

Controlling inflation is not the domain of the police, either. Another way to suppress soaring prices is managing logistics. If logistics are still not being managed properly, high transportation costs and long distribution times will continue to disrupt the price stability of goods.

Entrepreneurs, however greedy they may be, are rational when it comes to making decisions. If they know that the government has the power to intervene in the market, they will take rational action accordingly.

Entrepreneurs see the government’s announced decisions on whether or not to opt for imports as an opportunity to play the market. If it is true that the government will not import goods, the government does not need to announce this. Let uncertainty be part of the traders’ calculations.

The important thing is that we should not go back to the 1950s by involving the police to manage our economy. History has shown that such a measure will fail. There should be no more “economic police”. Do not let the Trade Ministry’s function be replaced by the police or, as it has happened before, task the Defense Ministry with taking care of agriculture in Kalimantan. Let the police take care of their main duties, in which they have yet to improve.

Abdillah Toha, Political, Economic, and Religious Observer

This article was translated by Musthofid.