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The Modern Political Economy
New York
1993
5. Achieving Rice Self-Suficiency
Rice was at the center of Indonesian politics. The shortage of rice was by far the most serious of all the food and clothing shortages that contributed to Sukarno's fall. As domestic production stagnated and foreign exchange ran out, daily life in Jakarta and the other cities became increasingly intolerable, and the balance of opinion had turned against the president. The new government gave top priority to its requests for emergency rice supplies as it opened talks with the Americans and the Japanese. Further, it took measures to boost domestic rice production even before deciding on the broader aspects of an economic program.
Within months of Soeharto's having assumed executive authority, a scientific event occurred in the neighboring Philippine islands that was to alter profoundly the political economy of rice. A new rice hybrid was developed that had the potential of increasing severalfold the traditional yields of irrigated land in tropical Asia. This new hybrid, the first in a series, was the beginning of what would soon become known as "the green revolution."
The new variety of rice presented an extraordinary opportunity to the Soeharto government. Since independence, Indonesian governments had been trying to make the country self-sufficient in rice. Rice was the nation's principal staple food and was the main product of the villages of Java. The need to spend foreign exchange to import rice was a serious drain on the national economy. And the need to ask foreign governments for gifts of rice was a national embarrassment. Yet, supplemental supplies from abroad were essential to feed the armed forces, the civil service, and the population of the cities, as well as to bring the runaway inflation of prices under control. The new rice variety thus held out multiple possibilities: new levels of productivity for the farmers of Java, greater self-respect for the nation in its foreign dealings, and an essential contribution to economic stability at home.
Indonesia was ill prepared to manage the new technology, however. The new varieties of rice were untested outside the locale of the rice institute in the Philippines, and Indonesia had virtually no scientific personnel to test them in Indonesian environments. The new varieties were designed for irrigated rice land in the tropics, and, although Java was one of the most highly irrigated regions in Asia, its irrigation canals were in serious disrepair and droughts and floods were a common experience. Finally, the new varieties required massive applications of nitrogen fertilizer in order to be productive, but Indonesia had no fertilizer industry. Information about the new technology had to be spread among the farmers, but the mass media did not reach them. Farmers would need credit to buy the new seeds and fertilizer, but the former system of rural credit had collapsed with the removal of the Chinese from the countryside in 1959. In short, Indonesia lacked everything that was required to take advantage of the new technology.
The Colonial Economy of Rice
Rice has been grown in what are now the Indonesian islands since about sixteen hundred years before the Christian era. It did not become the predominant staple food of the islands, however, until comparatively recently. Boeke described the important food crops of Java in the 1930s as including rice, maize (corn), cassava (tapioca), sweet potatoes, peanuts, and soya beans. The poor of Java, and even larger portions of the populations of the eastern islands of Indonesia, continued to depend on indigenous root crops, such as sago, or, more often, on maize and cassava, which were introduced from the New World by the Portuguese in the sixteenth century. 1
The Dutch altered the self-sufficient economy of Java, and later that of the "outer islands," by the promotion of agricultural crops for export to Europe. Tea, which had reached the islands from China or India some centuries before, was being carried by Dutch ships to Europe by the seventeenth century. Coffee from Yemen, sisal from the Yucatan, and oil palm from West Africa were introduced by the Dutch for export to Europe. Sugar, which had reached the islands much earlier, was the single most valuable export of Java in the 1920s and 1930s. 2
The Dutch invested heavily in irrigation, principally in order to promote sugar, although rice flourished in somewhat similar soil and water conditions. At the turn of the century, Java was almost as heavily irrigated as Japan. No other part of tropical Asia was so well irrigated at the time. The Dutch continued to expand the island's irrigation system in the early part of the twentieth century, with the result that Java was a major participant in the worldwide "sugar boom" that came to an end only with the Great Depression. 3
The Dutch also invested heavily in agricultural research. The first research priority was the export crops; a sugar research institute in Java, along with one in South India, developed hybrid varieties that were in use throughout the sugar-growing world in the 1930s. Nevertheless, varieties of rice were brought to Java from elsewhere in Asia in the early part of the century, and several experiment stations were established exclusively to search out varieties of rice with a shorter growing period. A number of newly bred varieties was released by Dutch scientists on the eve of World War II, one of which, named Peta, came into widespread use in Indonesia and the Philippines after the war ended. The Dutch have been credited, more than any other colonial power, with contributing to the early scientific development of rice in tropical Asia. But the war and the national independence that followed led to the virtual collapse of the scientific enterprise, not only in Indonesia but throughout South and Southeast Asia. 4
The Dutch colonial government also took an interest in the price of rice. Rice was needed to feed the workers on the rubber and other plantations, and because cheap labor was a major factor in the plantation economy, cheap rice was a major policy objective. Beginning as early as the late nineteenth century, the Dutch authorities intervened from time to time to stabilize the price of rice at low levels, chiefly by controlling imports and exports at times of shortage and surplus. The depression of the 1930s plunged the government deeply into the rice economy on a continuing basis. Beginning with the placement of controls on rice movements in and out of the colony, the government became involved in the shipping of rice among the islands, set the price to be paid by the mills for paddy (unmilled rice), and then put inspectors in the mills to see that the price regulations were observed. In 1939 a government agency was created to buy and sell rice for the purpose of stabilizing its price at low levels to consumers. 5
When the Japanese occupied the Indies in early 1942, it was in order to gain access to its raw materials. Their primary interest was in petroleum and rubber, the two ingredients essential to transportation and thus to the prosecution of the war that now extended across the entire Western Pacific and its East Asian littoral. But the Japanese also needed rice to feed their troops in the Southwest Pacific, and all of Southeast Asia was pressed to provide it. Forced rice deliveries were imposed on the rice-growing villages of Java, as well as on the rice-surplus river deltas of the Southeast Asian mainland. 6
Early Indonesian Programs
These, then, were the models that Indonesian leaders had to draw on as they organized their first government after independence. Rice was seen as a central governmental concern; it was an established government function to buy rice from the peasantry, sell it in the cities, and have a concern for the price to consumers. The prewar rice procurement agency was re-created. Then, as inflation began to impinge on policy, the government decided to pay a portion of the salary of the armed forces, and subsequently of the civil service as well, in rice instead of cash. 7
Because rice played such a central role in public affairs, it was decided to make the new nation self-sufficient in rice as soon as possible. This was difficult to accomplish, because the national economy was structured at the time much as it had been before the war. The plantation crops of rubber, sugar, coffee, tea, and the rest still had to be produced at a low cost in order to compete in international markets. And the government program of using rice in lieu of currency to pay its own personnel reinforced the bias. The government therefore tried to hold rice prices down, returns to farmers were not considered, and, in these circumstances, the self-sufficiency programs failed. The first program aimed to make the nation self-sufficient in rice by 1956, but in that year Indonesia imported almost 800,000 tons. Another program was begun to achieve self-sufficiency by 1962; in that year, Indonesia imported more than a million tons. 8
This second failure was complete. As reports of rice shortages and hunger circulated, Sukarno canceled a long-planned visit to Great Britain and made a radio address to the nation. All elements in the national front were to be mobilized in a new economic command under Sukarno's personal leadership. Committees were to be established in every province, district, and village to fix rice targets and set rice prices. The presidential speech was followed by a flurry of instructions, tours of inspection by cabinet ministers, and a highly publicized investigation of harbor congestion. But as time passed, and rice production did not increase, talk of self-sufficiency faded. 9
Sukarno himself launched a personal campaign in 1963 to urge the population to eat maize and other foods in place of rice. He also directed that the rice allowance being paid to the armed and civil services be paid in part in maize. But the outcry was so great that the idea was dropped. In 1965 rice production in Java was not much higher than it had been before World War II. Because the population had increased greatly during the same period, the availability of rice on a per capita basis was dangerously low. 10
Early Soeharto Efforts
Within months of its establishment, the Soeharto government took direct action. In addition to arranging emergency rice deliveries from Japan and the United States, the new administration decreed that fertilizer, which was in short supply, should be distributed to village headmen in rice-growing districts. The headmen would be responsible for distributing the fertilizer to the farmers in their villages and for collecting a portion of the rice harvest for payment back to the government. Despite the disorder in rural administration, the effort proved successful. Although repayments fell short of expectations, the government procured a record volume of domestic rice. Soeharto took advantage of the opportunity to increase rice rations for government employees in order to solidify his political support, particularly among the armed services. Little was left for "injection" into the market, however, with the result that rice prices increased by 300 percent in 1966, contributing to the record inflation of that year. 11
The new rice varieties discovered in the Philippines, the first late in 1966 and the second in 1967, seemed tailor-made for Indonesia. One of the "parents" of the new varieties was Peta, developed at Bogor in the late 1930s. As noted above, the new varieties were particularly well suited to irrigated land, and this gave a prospective advantage to irrigated regions such as Java, Malaysia, and Sri Lanka, which up to this time were far behind the surplus river basins of Burma, Thailand, and Indochina in their yields. Because the new varieties also required heavy applications of nitrogen fertilizer, countries with domestic sources of petroleum and natural gas had an added advantage; in Asia these were notably Indonesia and Malaysia. 12
Seeds of the first new varieties, named IR 8 and IR 5, found their way into Indonesia almost immediately. Having no capacity to subject the new varieties to serious testing, the Indonesian government simply approved both varieties in 1967. 13
As the political crisis over succession eased in 1967, Soeharto reorganized the rice procurement agency and placed it in new hands. The head of the agency was henceforth to report directly to Soeharto. General Achmad Tirtosudiro, who had been managing the army's own procurement operations, was put in charge of the new agency. Initially the agency was directed to purchase rice for the provisioning of the armed forces, the civil service, and state corporation employees. That it might later be given broader powers, however, was suggested by its new name, the National Logistics Agency, or Badan Urusan Logistik , commonly known as Bulog . 14
Eager to capitalize on the new rice technology, but lacking institutions that enabled it to do so, and with army officers playing key roles in the office of the president, the government was initially drawn to a "command" approach. Beginning in 1968, "blocks" of rice-growing villages were identified, fertilizers and pesticides were delivered on credit by foreign suppliers, farmers were directed to use these in conjunction with the new "miracle" seeds, and village headmen were directed to manage repayment to the government with a portion of the harvest. But farmers resisted the government pressure. Many farmers took the fertilizer, used it on other crops or sold it for cash, and minimized their payments in return. In 1970, with little to show for its effort, the government acknowledged defeat and canceled the program. 15
From this point on, greater economic rationality was observed. The government concentrated on three lines of action. Fertilizer was distributed at subsidized prices by a state trading corporation. A government bank was mobilized to extend rural credit. And Bulog was assigned to maintain a floor price to farmers. None of these agencies was able to manage the task adequately; the demand for credit far outran the bank's ability to provide it, much of the fertilizer arrived too late to be of any use, and it took Bulog several years to control the floor price. Nevertheless, seeds of the new IR 5 variety swept the country; by 1970 it was the most widely planted variety of rice in Indonesia, in use on a fourth of all the rice land in the nation. With fertilizer and capital both being pumped into the countryside at subsidized rates, and with floor prices beginning to hold firm, the farmers of Java were responding. Rice yields increased, and in 1970 and 1971 Indonesia experienced the highest levels of rice production in its history. 16
Even so, extremely serious deficiencies remained. The nutritional level in Indonesia in 1970 was still among the lowest in Asia. The average supply of calories was only 80 percent of the basic requirement, about on a par with that of Afghanistan and Bangladesh. In addition, despite the price support program, overall terms of trade were still to the rural population's disadvantage. While a minority of urban consumers was considerably better off as a result of the government's new development spending, it was thought that rural incomes had probably declined. 17
The Rice Crisis of 1972
It took a genuine crisis in the world supply of food grains to galvanize the Indonesian government to a full-scale commitment to rice self-sufficiency. The rice outlook was promising as 1972 began. The government was approaching the midpoint of its First Five-Year Plan for the economy, rice production was up by 20 percent over 1969, and the aim of increasing production by 50 percent by 1974--enough to make the country self-sufficient in rice--appeared within reach. Bulog held reserves of 300,000 tons, and the Minister of Agriculture confidently predicted another record output.
The vagaries of nature were to intervene, however, and they were compounded by human failure. The major crop of rice was planted in Java largely in the month of December as the monsoon rains began in earnest and moved from west to east across the island. If the government was to influence planting, its purchase price for rice had to be announced before that time. It was not until May 1972, however, when the harvest was being brought in from the fields, that the government acted. By July the results were already evident. Rice procurement was only a third of that of the previous year. 18
The months of June to September are dry months in Java, and at that time of year farmers with well-irrigated land can produce a second rice crop. With the spread of irrigation, the new varieties, and fertilizers, this second crop was coming to occupy an increasingly significant place in national food supplies. In 1972 the dry season was unusually dry, and not only in Indonesia. The drought extended across the entire rice-growing belt of tropical Asia. In Indonesia the shortfall in production did not become clear until September when the second crop was coming into the market. The weather conditions were known to be poor, but, with no system for close monitoring of crops, Indonesian authorities were not alerted to the severity of the situation until prices began to rise in the marketplace. 19
By the time the government realized the seriousness of the situation, it was too late. Bulog officials appealed for help to their traditional foreign suppliers, and cabinet ministers were sent to foreign capitals to underline the urgency of the situation. But adequate supplies could not be found at any price. Japan agreed to increase its rice shipments from 250,000 tons to 400,000 tons, but total imports for 1972 reached only 730,000 tons. In some parts of Indonesia, rice prices doubled. In early November alone the cost of living index in Jakarta rose by 16 percent. 20
The crisis was so severe that its impact extended throughout 1973. In the Bangkok market no rice prices were quoted at all from the months of April through December of that year. The international price of rice, which had fallen to a low of $125 per ton in 1971, rose to a high of $630 per ton before the crisis eased. In March 1973 the governments of the United States and Japan, the principal donors of rice to Indonesia, informed the Soeharto government that their shipments would total only 450,000 tons. The rest had to be bought on less favorable terms. Between mid-1972 and mid-1973 one million tons of very expensive rice were imported into Indonesia. 21
The economic crisis had its inevitable political consequences. In Jakarta, as prices rose in late 1972, Soeharto had the unpleasant experience of seeing the students of the capital, his one-time allies in bringing about Sukarno's removal from office, demonstrating in the streets against inflation, corruption, foreign capital, and the entire direction of economic policy. The demonstrations were to erupt into violence in January 1974. 22
Internationally, the rice shortage reinforced concerns about the world supply of food grains. The United Nations sponsored a world food conference, which took place in late 1974, to review the situation. An effort was made on this occasion to gain international agreement to create an international grain reserve. But the effort failed; the wealthy nations were not prepared to finance the international stockpiling of food grains, and the grain-surplus nations were not prepared to give away their market leverage to an international authority. 23 The lesson for importing countries such as Indonesia was clear: they would have to take responsibility for their own food security.
The Indonesian Reaction to the Crisis
How the Indonesian government might have responded to the rice crisis had its resources remained as they were in late 1972 when the crisis broke is uncertain. It is possible at least that the government, driven back on its domestic resources, might have been somewhat more open to private initiative and to farmer opinion. As events unfolded, however, its resources did not remain as they had been. Just as the government was bringing the crisis in rice supplies under temporary control, and was settling into what it now recognized was a long-term undertaking, the international environment created a new window of opportunity.
Between September 1973 and January 1974 the Six-Day War in the Middle East, and the oil embargo it spawned, increased the price of Indonesia's crude oil by 200 percent in international markets. The Soeharto government was suddenly released from the financial constraints under which it had labored, and was given new scope to deal with the rice problem as its policymakers thought best. It would be a mistake to read the later history of oil prices into the government's behavior at the time. The initial view in international oil markets was that the development was only temporary, and much of the Indonesian government behavior at the time reflected this opinion. Nevertheless, for what was initially seen as probably a short period of time, and only as the months and years passed came to be viewed as a more or less permanent condition, the Indonesian government was given a freedom of action across the entire range of economic policy that was unimaginable before.
The first result of the rice crisis was to increase the authority of the civilians whom Soeharto had appointed to his cabinet after the electoral victory of 1971. As he had done in 1966, when the economy was experiencing runaway inflation, Soeharto opted for competence. Another outcome was to impress on the senior technocrats in the cabinet that it was not enough to apply their minds to policy; it would be necessary to give detailed attention to how the policies they designed were carried out. One economic official described the weekly meetings that now took place among the government's impromptu "rice team" as seminars in which everyone was under considerable pressure to be able to answer the questions put to them by Widjojo Nitisastro, head of the planning agency. Widjojo's own office became a workshop where his rice policy staff worked to track every new piece of information as it was received, and to plan the next round of responses. Perhaps the most important outcome, however, which held more or less until oil prices were to rise again in 1979, was to solidify the government's economic apparatus at the very top. With the international community now seen as unable to protect them with rice supplies when needed, and with the students demonstrating against them in the streets, senior figures in the government began to work together to protect the reputation of the regime--and their positions in it. 24
The new oil money also gave the government planners an economic license to attack the rice problem across a broad front. This circumstance, added to the genuine fear engendered by previous failures, tended to set the Indonesian experience somewhat apart from that of other South and Southeast Asian nations. Most of the governments of Asia controlled the import and export of rice, and many also purchased on the order of 10 percent of the domestic production. All promoted the production of fertilizer, and many subsidized its price. Indonesia was alone, however, among the rice-importing nations of South and Southeast Asia, in the extent to which it invested its political and economic capital in the drive for self-sufficiency. The result was to make the industry a heavily regulated and protected one that had more in common with the rice industries of Japan, Korea, and Taiwan than with those of the rest of tropical Asia. The World Bank reported in 1987 that rice production was subject to seventeen central government regulations and many more at provincial and local levels. The Bank also calculated that subsidies to agriculture in 1986 alone had cost the government more than $700 million. 25
The New Varieties
The first high-yielding varieties of rice that swept Indonesia in the late 1960s were developed by the International Rice Research Institute at Los Baos in the Philippines. Indonesia had only one rice breeder of any note at the time, and in 1966, frustrated by the lack of funds, facilities, and staff, he had retired to his native North Sumatra. When the National Food Research Institute was made semiautonomous in 1974, only twenty members of its staff had been trained to the level of the doctorate, and only one of these was working on rice full-time. Rice research expenditure in 1974 was the lowest per 100,000 hectares in irrigated South and Southeast Asia: less than half that of the Philippines, for example. Building an indigenous scientific capacity was a long-term task involving extensive international cooperation. The new rice varieties experienced continuing problems with pests and diseases and caused serious losses to farmers in some districts in some years. The accomplishment of Indonesian scientists in developing resistant varieties and reducing dependence on chemical pesticides in the 1980s was justifiably celebrated by international organizations. 26
Fertilizer Production
One of the early government successes was in fertilizer production. At the time of the rice crisis of 1972, all the fertilizers in use in Indonesian agriculture were imported. The first domestic plant, financed by the World Bank and Japan, went into production in 1975. A new plant followed each year thereafter until, in 1982, the country had seven fertilizer plants in operation and domestic production met domestic demand. The state oil corporation, Pertamina, and the state fertilizer corporation, Pupuk Sriwijaya, or Pusri, became major distributors. The price was highly subsidized--the World Bank in 1987 indicated that the price was the lowest reported in Asia--and price margins were a source of bureaucratic competition. It was believed, however, that the bulk of retail trade was in private hands. 27
Local Public Works
The government made substantial investments in rural infrastructure that contributed to rice production. In addition to its own programs to improve and expand primary irrigation canals and major highways, and mainly using World Bank loans, the government contributed to the improvement of small canals, roads, and bridges through a large program of grants to local governments. The program was believed to have played a major role in improving the reliability of the water supply, speeding the distribution of fertilizer, and reducing the cost of transporting rice to the towns. The initial program was followed by others for primary schools, health centers, markets, and reforestation. By 1977-78 these local programs amounted to 12 percent of the national development budget, with the result that large amounts of money were spent in small towns and villages, and casual employment opportunities were greatly expanded. 28
Mass Guidance
It was assumed from the outset in government circles that the rice farmers of Java would need to be "guided" by the government to use the new technology. The principal vehicle was a program known as "mass guidance." The core of the program was a standardized "package" of seeds, fertilizer, and pesticides, made available on easy credit terms. The agricultural extension service was expected to promote the program, but it appears that only village officials and other leading villagers were reached directly, and the program worked through them. "Mass guidance" played a role in spreading the new technology, as the Masagana 99 program had in the Philippines, but most farmers, after some initial experience, dropped out. The standardized "package" did not make allowances for the varied environments with which farmers had to deal. As seeds and fertilizer became widely available, and as local sources of credit recovered, farmers preferred to be guided by their own experience. 29
Village Cooperatives
The government also attempted to encourage organizations of the farmers themselves, a key element in the early rice modernization of Japan, Korea, and Taiwan. In the early 1970s the government undertook to create "village economic units," which it was hoped would eventually evolve into genuine cooperatives. The initial function of the new units was to purchase rice for Bulog at the floor price set by the government; in the first year it was projected that the new organizations would be responsible for meeting half the government's domestic procurement target. So the prospective cooperatives were cast in the mold of government agents from the very outset. In addition, many local officials did not understand the new policy of price supports; when rice prices rose, and farmers did not sell to the new units at the floor price, some officials tried to force them to do so in order to meet their "targets." The number of "village economic units" increased until they numbered more than five thousand, but reports of nonrepayment of credit and allegations of other irregularities were widespread. The most serious allegation held that many of these organizations had fallen into the control of local village officials and prosperous farmers who ran them in the name of local farmers and pocketed the government subsidies for themselves. By the late 1980s many were said to be defunct. 30
Price Supports
In spite of these serious institutional deficiencies, the price support program succeeded in maintaining stability in the price of rice, and Bulog became the government's principal agent in the rice field. The floor price was raised every year throughout the 1970s, although, relative to other basic commodities, the price peaked in 1977. As the floor price increased, and the subsidy of fertilizer prices continued, the yields on Java became the highest in tropical Asia, and national production registered annual records. In the decade of the 1970s, nationwide production increased from 12 million tons to 22 million tons. Senior economists later considered this the Soeharto government's most significant achievement. And they credited Bulog with having made it possible. 31
Even with the record rice production, however, self-sufficiency eluded the government. As oil money financed an ever-growing range of programs and projects, more and more of the population could afford to buy rice. As they were able to do so, families stopped eating maize and cassava. The result was that Indonesia continued to import rice. As late as 1980 Indonesia was the largest importer of rice in the world, buying 2 million tons of rice, almost 20 percent of the rice that was traded internationally. 32
Finally, in the 1980s Indonesia did achieve self-sufficiency in rice in the sense that the trend lines of domestic production and consumption converged during the decade. How solid the claim was depended on how one took account of losses and of carry-over stocks from prior years. When domestic production was up, as in 1984-85, the volume of rice stocks the government held became so large as to seriously burden its financing and warehousing capabilities. When domestic production was off, as in 1987-88, the volume of rice stocks fell short of sufficiency. It was, in any case, a major achievement. In the decade from 1974-75 to 1984-85 Indonesia's growth in cereal production per capita was the second highest after Burma, and well above China and India. This was all the more remarkable since Indonesia's growth in agricultural production in the 1950s and early 1960s was the slowest of any major Asian country. 33
The Rise of Bulog as a Power Center
The agency credited with contributing most to the government's achievement in rice production and price stabilization was the National Logistics Agency, or Bulog. As mentioned above, Bulog was established as an autonomous government agency in 1967. Its head sat in the National Stabilization Council, a cabinet-level body, and reported directly to the president. 34
Bulog was initially given a monopoly over all purchases of rice on behalf of the government, both at home and abroad. These functions required Bulog to manage large amounts of credit advanced to the agency by state banks, and, within a year or two of its founding, reports of financial scandals involving its officials began to appear in the public press. A panel of prominent national figures appointed to look into official corruption in 1970 reported to Soeharto that Bulog was managing "billions" of rupiah with staff officers who were newly hired and had no prior financial experience. It said Bulog was in need of "strict internal control" and "skilled and honest employees." 35 It also recommended that Bulog's branches be closed and that Bulog itself be moved out of the president's office and into the Ministry of Agriculture. 36
Soeharto reportedly never discussed the panel's recommendations with the economic ministers of his cabinet, and, so far as was evident to the public, never took any action himself. On the contrary, Bulog's functions were broadened in 1970; its principal function was henceforth to be "the control of prices of rice, paddy, wheat flour and other basic commodities with a view to safeguarding price stability both in the interest of producers as well as consumers in accordance with the Government general policy." 37 Only in mid-1973, after the rice crisis had revealed how costly Bulog's management deficiencies were to the nation and to his government, did Soeharto finally retire Gen. Achmad Tirtosudiro as head of the agency. The presumption was that Soeharto had delayed this action out of a sense of obligation to Achmad for his loyalty and support, including the provision of funds for any number of special projects important to the president--for example, the Golkar electoral campaign of 1971.
This presumption was reinforced by Soeharto's choice of Bustanil Arifin to succeed Achmad. Arifin had been a long-time figure in the army procurement agency, had been part of the effort to locate rice supplies abroad in the early months of the Soeharto government in 1966, and had been deputy head of the agency before going off to serve as consul general in New York. He was, in addition, a dynamic Minangkabau from West Sumatra, and he was to turn Bulog into a much more competent organization, possibly the most powerful food agency in Asia. Even critics gave Arifin high marks for putting the public need ahead of personal and bureaucratic interest. 38
An undoubted element in Bulog's success was that it was heavily subsidized by the government. At the outset this was accomplished principally through the pricing of Bulog's management of rice imports. Much of the rice imported in the early years came by way of foreign aid programs sponsored by the United States and Japan. U.S. rice shipments under the aid program were sold at prices well below the world market price, leaving a substantial mark-up available to the Indonesian government. The government, in turn, charged Bulog for the rice according to a complicated formula that protected it from any loss. By the early 1980s, when most imported rice was being acquired from commercial sources, Bulog was subsidized by a line of credit provided by the Central Bank at highly favorable interest rates; the volume of credit was limited only by Bulog's stocks of rice to serve as collateral. 39
Bulog did not become powerful through money alone. It acquired power because it developed a reliable system of information to guide policymakers, developed the capability of managing the physical movement and storage of large quantities of commodities, and demonstrated the capacity to protect price stability. In the absence of a smoothly functioning market for rice among the widely separated islands, Bulog developed a market information service that provided daily reports by radio and telex on prices in every district of the country. In the absence of adequate warehouses--Bulog initially leased warehouses from private owners, but most were old, poorly managed, and a source of significant losses--Bulog built a chain of more than three hundred modern warehouses spread throughout the country, capable of holding more than 1.5 million tons. Daily reports of movements in and out of these warehouses provided a close watch on the national rice reserve and its internal distribution. 40
Bulog also developed a modern staff that was lean by Indonesian standards--five thousand in the early 1980s. Bulog officers were among the vanguard of the new elite in Indonesia's civil service, the well-trained and well-paid employees of the state corporate sector, at work in modern facilities, and well provided with housing, recreational facilities, child care facilities, and all the other perquisites of bureaucratic success in Indonesia. In Jakarta, Bulog officials were ardent joggers and participants in other exercise programs to guard against heart disease, a national campaign that Bustanil Arifin founded and promoted as assiduously as he did everything he turned his hand to. In the small towns that served as the centers of rural districts in distant islands, Bulog facilities were spanking new, standing out from the colonial architecture of older government offices, and even further removed from the seedy appearance of most private commercial establishments. Bulog officials in the provinces were university men, the sort who knew important people in the capital, and who played tennis in the afternoons with the local civil and military leadership. 41
As Bulog's capacity grew, the scale and scope of its transactions grew as well. In fiscal year 1982-83, it was operating on a scale that was three times that of 1967, managing an estimated 8.3 million tons of commodities with a value of $4.2 billion. By this time it was involved not only in the marketing of rice, wheat, and wheat flour, but had expanded to sugar, soybeans and soybean meal, peanuts, mungbeans, and poultry. The wheat Bulog imported was milled into flour by three mills: two of these were controlled by the private Salim group, led by Liem Sioe Liong, Soeharto's business partner from Semarang days, and the other was sold by Singapore interests in the early 1980s, reportedly under Bulog pressure, to PT Berdikari, a government-controlled corporation led by Arifin himself. A World Bank report in 1987 said that the profit margin of the flour millers was 25 percent, which it described as "high by international standards" and "difficult to justify." 42
Criticism of Bulog
The most serious criticism of Bulog had to do with its entry into the sugar industry. In 1975 the government launched a major program to restructure the industry, which was by this time in serious disrepair; domestic consumption was running well ahead of production, and large quantities of sugar were being imported. The sugar mills that remained from the 1930s were much reduced in number and technically outdated. They were, in addition, since the takeovers of 1957-58, owned by the government, yet they were still dealing with the cane farmers as in the colonial period. The mills rented land from the farmers in surrounding villages and cultivated it with hired labor. Beginning in 1975 the government undertook to modernize the mills with World Bank financing, and, at the same time, to take cane production out of their hands and leave it to the land-owning farmers themselves. On the face of it, the plan made excellent sense; small-holders had demonstrated they were more efficient than the nationalized plantations producing rubber, coffee, tobacco, and other cash crops. 43
In practice the program achieved its main aim: the production of sugar increased significantly. But, as in the case of rice, the cost was high. Sugar cane was in competition with rice for the most cultivatable land in Java, and with the new varieties of rice making it possible to grow two to three crops a year, farmers preferred to plant rice. The new program therefore required "administrative guidance" from the beginning. Local district heads and other local officials had to set targets for each lower level of administration; at the bottom of the system, village heads were obliged to parcel out among local villagers the acreage to be planted in cane. Considerable coercion was sometimes needed to accomplish this, particularly as contiguous parcels of land were highly desirable for cane production. After 1981 the "village cooperative units" were given extensive powers to manage the whole process of production, harvest, and delivery to the mills; in practice, however, this simply permitted small groups of government officials, mill managers, and leading villagers to control the process in the name of the farmer-members of the local groups.
Bulog's involvement had to do mainly with the wholesale trade in sugar. The government set the price that cane farmers were to be paid at harvest; Bulog bought the cane, contracted with the mills to do the milling, and managed the wholesale trade of the refined product; it also held a monopoly on the importation of sugar from abroad. Farmers might have been expected to welcome this development, but, in fact, many thought the price was too low, and by 1983 their angry protests surfaced in an official report. 44 By 1987 the World Bank criticized the entire management of the industry. Prices were stabilized, and imports were reduced to zero, but this had been achieved, the Bank said, "at substantial costs in terms of efficiency foregone and high consumer prices." Critics added that no one knew what Bulog was doing with the profits. 45
The criticism of Bulog seemed reasonable. As a multibillion dollar organization responsible directly to the president, Bulog was largely unsupervised in its management of very substantial funds and massive quantities of goods. Bulog never issued a public financial report up to the time of this writing. Bustanil Arifin reported only to Soeharto. Reflecting on this pattern, which extended to other major economic agencies as well, one of Indonesia's leading business analysts observed that there was nothing modern about this style of accountability. "It's the way a king governs," he said. 46 The system did have its benefits. "It used to be that the political parties always got a profit out of rice, whoever was in control at the time," a senior Bulog figure said in 1983. "But no party gets a piece of the pie anymore, and that includes Golkar. No generals come in here to tell me what to do either, not anybody." 47
For the circumstances of the 1970s, that might have been all that could have been accomplished. At least Bulog was effective with regard to rice. In the more straightened financial circumstances of the 1980s, however, costs also mattered. The World Bank recommended that the agency be pared back to its initial function of ensuring a secure supply of rice. Trade in wheat, corn, and soybeans, it said, should be left to the private sector. And the government should ease the whole pattern of control of the production and marketing of agricultural commodities. 48 But Bulog was now a center of power in its own right, and bringing it to heel would not be easy.
The New Rice Economy in the Villages of Java
The massive increases in rice production, of which Bulog was the paramount symbol, did not result only from decisions at the national level, and did not have their impact only there. The increases also reflected the decisions of millions of rice farmers in Java who moved quickly to use the new varieties, invest in fertilizer, and respond to the incentive of the floor price. These decisions, and the increasing land productivity that resulted, suggested that a complex process of rapid change was taking place in rural society. The precise nature of this process, and its meaning for the poorer families in the villages of Java, continues to be a matter of uncertainty and the subject of much debate.
An influential view of the village society of Java has been that of Clifford Geertz, whose writings since the late 1950s have been the most extensive on the subject. Geertz saw wet rice cultivation as having the peculiar ability to absorb almost unlimited amounts of labor. As the population of Java grew, and more hands were available to tend the rice fields, production increased. But it increased only in proportion to the increase in the labor supply. The village was able to sustain its larger populations, but remained as poor as before. This process of growth without expansion he called "agricultural involution." 49
According to Geertz, this special characteristic of rice cultivation was associated with a complex village social system in which land was divided and work opportunities shared, practices that also sustained the village community. In the face of problems posed by a growing population, increasing monetization, greater dependence on the market, more intimate contact with bureaucratic government, and the like, village society proved highly resistant. Although the basic pattern of village life was maintained, that life grew ever more elaborate in the arrangements it required to survive. While Geertz believed that this "shared poverty" was "ultimately self defeating," his vision of the self-sufficient, self-contained village of Java, resistant to all pressures from outside, had a powerful influence.
The idea that Java's rural society had great internal strength was shaken by the mass violence of 1965, but the notion was not abandoned among the Indonesian elite. The proposal to make rural society into a "floating mass," disengaged from party politics, owed much to the belief that village life was fundamentally well ordered, that it mainly had to be protected from the intrusion of ideologies from the cities and towns. The emphasis in government rice policies of the village community as an undifferentiated whole was largely the result of Geertz's optimism regarding the distribution of economic benefits in the village. At the same time, the government did not share Geertz's pessimism about the possibility of economic growth. Some scholars did argue that significant economic cleavages had existed in rural Java all along. 50 Others argued that these difference were in large part responsible for the 1965 violence. 51 The discussion was substantially broadened, both in its scope and participation, by reports that began to appear by 1970 of innovations, mechanical and social in nature, that were displacing human labor in various aspects of the rice industry. Inasmuch as large numbers of villagers depended on the work being displaced, the reports immediately generated concern and debate.
One innovation that seemed to come quickly into the widest use was a small machine, powered by electricity, that removed the coarse hulls from the rice grain. The rice huller did not polish the rice as milling machines could do, but villagers were not accustomed to cooking and eating polished rice. Most rice consumed in the villages was merely hulled, and until the arrival of the hulling machines, the hulling was accomplished by hand-pounding. This was a traditional occupation of village women, especially those of poorer families. The new hulling machines were invariably owned by one or a few of the wealthier village families. The machines were capable of hulling the rice quickly and at lower cost than hand labor. As use of the machines spread, millions of village women were losing a source of part-time employment that was significant to their family income. 52
Other mechanical improvements also were reported in the early 1970s: power tillers (hand tractors) to prepare larger tracts of land for planting; mechanical weeders; scales to measure harvest shares; and mechanical threshers to separate the grain from the stalks. The most controversial innovation, however, had to do with the harvesting of rice. It was the custom in much of Java for village women to help in the rice harvest and share in the crop. The custom was so ingrained that even women from neighboring villages, in times of need, would not be turned away. In her work the harvester used a small knife, called the ani ani, with which she would cut one stalk at a time, enabling her to collect the grain with minimal loss. But in the early 1970s reports began to appear of a wholly new harvesting system. A landowner would sell the crop as it stood in the field to a broker from a neighboring town. The broker would then bring in a team of hired men to collect the harvest. They worked with sickles rather than the ani ani knife, and were paid in cash. Thus only the landowner received any benefit from the harvest. 53
All these developments raised questions about the state of rural economic welfare and village social solidarity. It was possible that certain of the practices only appeared to be new; some evidence suggested, for example, that sickles had come into use in some areas before World War II. It also was possible that still other practices had been present as early as in the 1950s and simply had gone unreported by the few scholars in the field. Exactly when the new harvesting arrangements appeared, for example, was difficult to establish, and, because the practices seemed to vary from place to place, their impact was difficult to assess. But there was no question about the emergence of the mechanical rice hullers, and these were seen as part of a wider pattern of development that was pushing many villagers out of the rice industry. The question was what effect these changes were having on the distribution of land, employment opportunities, income, and welfare. 54
How many villagers owned rice land, and how much land they owned, was difficult to establish. The population census of 1980 indicated that 53 percent of all household heads in Java operated agricultural land at their own risk--as owners, lessees, or sharecroppers. Almost half operated less than 0.25 hectare, or little more than half an acre, and these were thought unlikely to be full-time farmers. Another 31 percent of household heads worked as agricultural laborers, and most of these also were thought unlikely to be engaged in farming full-time. The picture that emerged was of a rural society in which approximately a fourth of household heads were full-time farmers, half were part-time farmers and farm laborers, and another fourth were not employed in farming at all. Official data showed that the distribution of holdings by size was stable. Yet, the productivity of irrigated rice land was rising rapidly, land values were increasing, and long-time observers believed that a lot of land was changing hands. It seemed reasonable to conclude that a new land-owning elite was emerging in rural Java, composed of village Golkar officials, leaders of village cooperatives, retired civil servants and military personnel, and households with family ties to individuals earning incomes in urban areas. 55
Employment data were ambiguous in their implications. It was clear that some innovations that came along with the new rice varieties--especially the sickle and the mechanical huller--reduced employment opportunities in the rice industry. Yet, the widespread rural unemployment that had been feared did not eventuate. Perhaps some changes occurred more slowly than expected. Also, rice was not the only important crop; it was found that many poor villagers earned the largest share of their income from the intensive cultivation of small garden plots surrounding their homes. In addition, many rural families earned large portions of their income from a multiplicity of occupations outside farming, including food processing, other home and village industries, construction, transportation, and petty trading. For many rural dwellers, such job opportunities appear to have been sharply on the rise in the late 1970s and early 1980s. 56
The impact on the distribution of income was less clear. It was commonly agreed that government policy tended to favor urban consumers all through the 1970s, and to favor the minority of larger rice farmers in the villages. In the early years of the Soeharto administration, up to 1970, it was believed overall that real incomes in rural areas actually declined. Later data indicated that from 1970 to 1976 per capita income in the villages of Java increased by 3.4 percent per year--more slowly than per capita income in Jakarta and the other cities of Java, but faster than in the rest of the country. Soeharto, in his State of the Nation Report of 1977, said that, according to World Bank standards, an increasing share of the population was moving above the poverty line. A World Bank report of 1990 found a decline in poverty in the population--from 35 million people, or 22 percent, in 1984 to 30 million people, or 17 percent, in 1987--with evidence that the benefits of growth favored rural areas. Village studies throughout the period tended to find the gap in consumption patterns continuously growing, however, with the poorest villagers only slightly less poor than before, and others far richer, able to own motorbikes and even automobiles and to send their children to secondary school and even to the university. 57
By the late 1980s it was clear that rural Java was becoming more and more a part of the larger national economy. As rice production increased, more of the village production was sold in the towns. As wealthier villagers experienced increased incomes, more of the village's income was spent in the towns. As the "old" village elite gave way to the "new" elite of government-appointed officials, even the source of funds for village religious festivals was said to be changing. As village men migrated to work in the cities, Islamic preachers were said to follow them. And in the cities, these rural migrants found the gap in living standards vastly wider than at home.
It seemed a potent combination, and the implications for policy seemed clear. The government had brought about a revolution in the economy of rice in the villages of Java. Not only had national production set records, but many village families had grown wealthy as well. The achievement was accomplished at some cost, however. Those who had benefited most were among the government's strongest supporters in the villages; the government was as dependent on the continued regulation and subsidy of the rice industry as the better-off villagers were. Meanwhile, funds were urgently needed to generate continued employment opportunities outside agriculture on Java, and at the same time to provide some form of social security for the poorest of the population. As to the first of these needs, the new rural credit program of the People's Bank (Bank Rakyat ) was most promising, generating a total of U.S. $500 million in loans to 1.6 million borrowers by the end of 1989. As to security for the very poor, that remained a task that the government and the elite had barely begun to address.
Note 1: Neill, Twentieth-Century Indonesia , p. 69; Boeke, Evolution of the Netherlands Indies Economy , p. 109. Back.
Note 2: Neill, Twentieth-Century Indonesia , pp. 70-72; Boeke, Evolution of the Netherlands Indies Economy , pp. 39-80. Back.
Note 3: Neill, Twentieth-Century Indonesia , p. 56; Barker et al., Rice Economy of Asia , p. 98. Back.
Note 4: Barker et al., Rice Economy of Asia , pp. 57-58 . Back.
Note 5: Boeke, Evolution of the Netherlands Indies Economy , pp. 112-16, 133-37; Mears and Moeljono, "Food Policy," pp. 23-24. Back.
Note 6: On the rice situation in Java during the Japanese occupation, see Anderson, ed., "The Problem of Rice," pp. 77-123; and Shizuo, "Jawa Shusen Shoriki." Back.
Note 7: Mears, New Rice Economy of Indonesia , p. 389; Mears and Moeljono, "Food Policy," p. 24. Back.
Note 8: Mears and Moeljono, "Food Policy," pp. 24-28. Back.
Note 9: Mackie, "Indonesian Inflation," pp. 33-36. Back.
Note 10: Mears and Moeljono, "Food Policy," p. 25. Back.
Note 12: Chandler, Rice in the Tropics , pp. 32ff; Siamwalla and Haykin, The World Rice Market , pp. 37-39. Back.
Note 13: Mueller, "Observations on Rice Production," and Shaw, "Rice Research Project Evaluation"; William B. Ward, Science and Rice in Indonesia , p. 13. Back.
Note 14: Mears and Moeljono, "Food Policy," p. 29; Robison, Indonesia , p. 229. Back.
Note 2: Neill, Twentiet Note 15: Mears and Moeljono, "Food Policy," p. 32. Back.
Note 16: Ibid., pp. 26-27, Table 2.1, and p. 33. Back.
Note 17: Asian Development Bank, Rural Asia , p. 45; Timmer, "Formation of Indonesian Rice Policy," pp. 39-43. Back.
Note 18: Mears and Moeljono, "Food Policy," p. 34. Back.
Note 19: Economic Intelligence Unit, The Economist, Quarterly Economic Review , 1972; Mears and Moeljono, "Food Policy," p. 34. Back.
Note 20: Economic Intelligence Unit, The Economist, Quarterly Economic Review , 1972; Mears and Moeljono, "Food Policy," p. 29, Table 2.2, and pp. 34-35 Back.
Note 21: Chandler, Jr., Rice in the Tropics, pp. 97-98 and figure I2; Economic Intelligence Unit, The Economist, Quarterly Economic Review ; Timmer, "Formation of Indonesian Rice Policy," p. 39. Back.
Note 22: Samson, "Indonesia," pp. 157-65. Back.
Note 23: Humphrey, Hunger and Diplomacy , pp. 10-13. Back.
Note 24: Personal interviews, 1983 and I986. Back.
Note 25: Barker et al., Rice Economy of Asia , pp. 232-241; Jakarta Post , May 23, I987; "Indonesia Survey," p. 11, The Economist , August 15, I987. Back.
Note 26: Shaw, "Rice Research Project Evaluation," pp. 4, 7; William B. Ward, Science and Rice in Indonesia , pp. 24, 49-57; Siamwalla and Haykin, The World Rice Market , p. 38; Food and Agricultural Organization, May I988; Wall Street Journal , April 16, 1990. Back.
Note 27: Mears and Moeljono, "Food Policy," p. 4I; Mears, New Rice Economy of Indonesia, pp. I23-I36; Barker et al., Rice Economy of Asia , pp. 86-87; Harvard Institute for International Development, unpublished data. Back.
Note 28: Harvard Institute for International Development, unpublished data; R. A. Richards, "The Kabupaten Program," Indonesia , no. 25 (April I978), pp. 183-98 Back.
Note 29: Harvard Institute for International Development, unpublished data; Njoman Suwidjana, "Indonesia's Rice Policy," Southeast Asian Affairs 1981 (Singapore: ISEAS, June I982), p. 156. Back.
Note 30: Mears and Moeljono, "Food Policy," pp. 39-40; William B. Ward, Science and Rice in Indonesia , pp. 86-87; Harvard Institute for International Development, unpublished data; Suwidjana, "Indonesia's Rice Policy," p. 153. Back.
Note 31: Mears and Moeljono, "Food Policy," pp. 40-46; Barker et al., Rice Economy of Asia , p. 47, Table 4.13; personal interviews, 1983. Back.
Note 32: Mears, New Rice Economy of Indonesia , pp. 54-66; Siamwalla and Haykin, "Indonesia's Rice Policy," p. I8, Table 5. Back.
Note 33: William B. Ward, Science and Rice in Indonesia , p. 1; Harvard Institute for International Development, unpublished data; Tempo, May 11 and May 18, I985; Raphael Pura, Asian Wall Street Journal , June I4-I5, I985; Booth and McCawley, "The Indonesian Economy Since the Mid-Sixties," p. 1. Back.
Note 34: Republic of Indonesia, National Logistics Agency (Jakarta: National Logistics Agency, I982), p. iii. Back.
Note 35: Sinar Harapan (July 22, I970), cited by Robison, Indonesia , p. 47, n. Back.
Note 36: Robison, Indonesia , pp. 29-33. Back.
Note 37: Republic of Indonesia, National Logistics Agency , p. iii. Back.
Note 38: See, for example, Robison, Indonesia , p. 30. Back.
Note 39: Mears, New Rice Economy of Indonesia , pp. 422-4; Republic of Indonesia, National Logistics Agency , p. iii; personal interviews, I983. Back.
Note 40: Republic of Indonesia, National Logistics Agency , pp. iv, v; Mears and Moeljono, "Food Policy," p. 41; personal interviews, I983. Back.
Note 41: Republic of Indonesia, National Logistics Agency , p. v; personal observations and interviews, I983. Back.
Note 42: Robison, Indonesia, pp. 23-33; Republic of Indonesia, National Logistics Agency , p. iv; Jakarta Post , May 23, 1987. Back.
Note 43: The discussion in this and the following two paragraphs is based principally on Mubyarto, "The Sugar Industry," and Mackie and O'Malley, "Productivity Decline in the Java Sugar Industry." Back.
Note 44: Soemardjan, Petani Tebu . Back.
Note 45: Jakarta Post , May 23, I987. Back.
Note 46: Personal interview, I983. Back.
Note 47: Personal interview, I983. Back.
Note 48: Jakarta Post , May 3, I987. Back.
Note 49: Geertz, "Religious Belief and Economic Behavior," pp. I34-58; and Geertz, Agricultural Involution . Back.
Note 50: White, " 'Agricultural Involution' and Its Critics," pp. 18-31. Back.
Note 51: Lyon, Bases of Conflict , and Wertheim, "From Aliran to Class Struggle," p. 17. Back.
Note 52: Collier, "Agricultural Evolution in Java" pp. I64-66. Back.
Note 53: Collier et al., "Recent Changes in Rice Harvesting Methods," pp. 36-42; Hayami and Hafid, "Rice Harvesting and Welfare," pp. 94-112. Back.
Note 54: Kikuchi et al., "Class Differentiation," The Developing Economies , pp. 45-64; White, "Population Involution," pp. I3off; Barker et al., Rice Economy of Asia , pp. 135-36; Manning, The Green Revolution , passim. Back.
Note 55: Anne Booth and R. M. Sundrum, "Income Distribution," in The Indonesian Economy , ed. Booth and McCawley, pp. 182-90; Harvard Institute for International Development, unpublished data; Manning, The Green Revolution , p. 76. Back.
Note 56: Stoler, "Garden Use and Household Economy"; White, "Population Involution"; and Manning, The Green Revolution . Back.
Note 57: Mears and Moeljono, "Food Policy," p. 33; Timmer, "Formation of Indonesian Rice Policy," p. 43; Arndt and Sundrum, "Comments on Clive Gray's 'Civil Service Compensation in Indonesia' "; Tempo , August 27, I977, cited by Leo Suryadinata, Peranakan Chinese Politics in Java (Singapore: Singapore University Press, I98I) p. 14; Booth and Sundrum, "Income Distribution" pp. 192,194-195; KOMPAS, July 19, I983; Keyfitz, "An East Javanese Village"; Manning, The Green Revolution , pp. 68-70; Far Eastern Economic Review , June I4, I990. Back.
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