Deregulation and Development in Indonesia

By Farrukh Iqbal; William E. James | Go to book overview

CHAPTER 9

Costs and Benefits of Soymeal Deregulation

Jacqueline L. Pomeroy


INTRODUCTION

In November 1988, the government of Indonesia (GOI) issued a regulation covering the domestic soybean and soymeal markets. The stated purposes of the regulation were to sustain a stable price and to establish a domestic source of supply. To accomplish these goals, the Ministry of Finance (MOF) established a series of prices and fees that would regulate the procurement and production of soybean meal. Procurement responsibility was transferred to the Bureau of Logistics (BULOG) which had broad authorities in Indonesia to buy and sell strategic agricultural commodities and foodstuffs. Domestic production was encouraged by setting a domestic price substantially above the international price of soymeal and erecting an effective ban on meal imports. However, only one domestic producer was permitted to operate, a producer with strong political links.

This regulation was changed three times between 1988 and 1995 (see Table 1). The first deregulation in 1991 substituted a tariff and large surcharge for the previous ban on imports. The second deregulation in 1993 eliminated the surcharge but required a minimum 40 percent domestic purchase ratio. A subsequent change in 1994 eliminated the 5 percent tariff and reduced the minimum domestic purchase ratio to 30 percent. This chapter presents estimates of the welfare changes that arose from these regulatory adjustments. These estimates, in turn, permit an assessment

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