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Bulog's charm lured many into fee-seeking business

Jakarta Post - July 27, 2011

This is the second of two reports on misappropriation in agricultural development. The Jakarta Post's Nani Afrida explores the controversy surrounding rice imports, and poor agricultural infrastructure in rice production centers. Here are the stories:

State logistics company PT Bulog's president director, Sutarto Alimoeso, is fully aware of the hot seat he is currently in. A job that has landed many of his predecessors, and top politicians, in jail for graft cases related to the company's business.

Despite the notoriety, Bulog's charm remains, attracting many politicians to use the company as their cash cow. But what exactly draws politicians into wanting a share in the rent-seeking business with Bulog?

The company has around Rp 16 trillion (US$1.88 billion) this year to spend on securing rice and sugar reserves, as well as keeping their prices stable to avoid spiking inflation. Another Rp 3 trillion will be added, should the government finally agree to give the green-light for the company to import rice this year.

"I know many people don't like me," said Sutarto, an old high-school friend of President Susilo Bambang Yudhoyono. "Political pressure is so heavy given Bulog's notorious reputation as a graft-infested company," said the former Agriculture Ministry bureaucrat.

Allegations of exploitation and fees-seeking regularly resound around Bulog's plan to import rice. The Cabinet was recently divided over the rice import policy, with Coordinating Economic Minister Hatta Rajasa, and Trade Minister Mari Pangestu, in the supporting camp, while Agriculture Minister Suswono was on the opposing side.

Suswono's stance is also supported by his Justice and Prosperous Party (PKS), the Golkar Party and the Indonesian Democratic Party of Struggle (PDI-P). The three parties have advocated for the removal of Sutarto.

They argued that imported rice would create more dependency on other countries and create losses for farmers, as rice prices will plunge. But keeping the price of rice lower and stable is just what rice-import supporters expect.

"The imports will help stabilize rice prices and keep inflation low. Rice has always accounted as the key contributor to our inflation," said Hatta.

The license to grant rice imports is granted by a coordinating meeting led by Hatta. Until now, no decision has been taken.

"Bulog spends trillions of rupiah mostly to import rice. They should instead spend it to boost rice production," said Firman Soebagyo, the House of Representatives' vice chairman for Commission IV overseeing agriculture, fisheries and food. "We suspect something questionable is going on with the rice import plan."

A senior bureaucrat with the Agriculture Ministry, who requested on anonymity as the issue is deemed sensitive, said Bulog could not justify the reasons behind the imports.

"There's something odd with the company's data. They claimed our rice reserves had reached the minimum level and that they couldn't buy the rice from farmers to increase the reserves, as supply was tight," said the bureaucrat. "But last year, there was a surplus of around 4 million tons. Where are they now?"

He said Bulog was supposed to absorb rice from farmers at the right time and right price before deciding to import. Sutarto refused to comment on the 4 million tons' discrepancy in the country's rice reserves.

The country actually has a success story of keeping rice prices stable in 2008 without having to import, the first time since 1982. The policy was taken ahead of the 2009 general election. After the election, Bulog imported rice in December, 2009, amid stable prices.

But Sutarto argued the import policy was justified to keep the price stable and keep inflation low. The problem, he said, was with the implementation of the imports, which were often plagued with graft.

Sutarto claimed Bulog had reformed its rice importing mechanism to prevent graft. Previously, when the government announced a plan to import rice, importers mostly Bulog's old-time brokers, operating since the Soeharto era would come to Bulog and offer a price.

"But I rejected the brokers' proposals as the prices were dubious, preferring to fly to Vietnam and Thailand to buy the rice myself," said Sutarto. "In the past, Bulog just sat and waited for the rice to arrive as arranged by the brokers. But that's an old practice."

Sutarto said many brokers come to his office to offer their services, but none were accepted. "I think they are angry over my rejection and have used various parties to attack us," said Sutarto, refusing to elaborate.

Among the parties are businessmen with close ties to politicians who opposed the rice imports.

Legislator Firman Soebayo denied the allegation, saying that the reform at Bulog was not effective because many old officials and players who were allegedly involved in graft cases were still roaming around at the company.

During the past 10 years, three Bulog president directors Beddu Amang, Rahardi Ramelan and Widjarnarko Puspoyo have been convicted for graft.

Beddu and Rahardi were known as Golkar financiers, while Widjanarko was with the Indonesian Democratic Party for Struggle (PDI-P).

Former vice president Jusuf Kalla was once Bulog president director in 2000 but was fired by then president Abdurrahman "Gus Dur" Wahid, due to alleged graft.

Golkar patron Akbar Tandjung was sentenced to four years in prison for bribery relating to Bulog in 2001, but was later acquitted by the Supreme Court in 2002.

Gus Dur was impeached by legislators in 2001 following allegations in another bribery case relating to Bulog.

Most of the graft cases afflicting the officials and the politicians revolved around fees paid by brokers in rice import deals.

In 2006, several Commission IV legislators launched an investigation to detect graft in rice imports. Although the Commission managed to gather some evidence of the graft, the case was sealed off.

How graft occurs in rice imports:

1. During government-to-government negotiations, officials will agree to inflate the price of the imported rice, and then split the proceeds of the higher price among themselves.

2. During a negotiation between Bulog partners and their foreign counterparts, they agree to inflate the price of the imported rice, and then split the proceeds of the higher price among themselves.

3. Direct appointment of companies to import rice during an emergency rice shortage. The appointed companies will pay a certain amount of "success fees" to Bulog officials. 4. Bulog officials manipulate fluctuations in the price of rice to justify rice imports and to stabilize the price.

5. Inflating the amount of the import price and selling the discrepancy on the black market.

[Source: State Logistics Agency (Bulog)]

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