$Unique_ID{bob00214} $Pretitle{} $Title{Indonesia Chapter 3B. Role of Government} $Subtitle{} $Author{Riga Adiwoso-Suprapto} $Affiliation{HQ, Department of the Army} $Subject{government percent repelita development system bank agricultural credit land rice see pictures see figures } $Date{1982} $Log{} Title: Indonesia Book: Indonesia, A Country Study Author: Riga Adiwoso-Suprapto Affiliation: HQ, Department of the Army Date: 1982 Chapter 3B. Role of Government Since the establishment of the New Order government of Soeharto a relatively stable and rational macroeconomic management system has taken root. Largely the creation of Widjojo Nitisastro, minister-coordinator for economy, finance, and industry and head of the National Development Planning Council (Bappenas), the system reflected the technocrat's preferences for analysis, planning, and step-by-step development of the economy. As some observers have witnessed, however, this policymaking apparatus has displayed irregularities. Prominent bureaucratic capitalists have been able to circumvent ordinary channels by going directly to the president. This can lend the system great flexibility but can also increase its susceptibility to unplanned and costly failure. On the surface, Bappenas is the source of the government's economic wisdom, but the real power to select economic policy is in the hands of the president. The president has been subject to influences not only from Bappenas but also from differing interests represented in the various departments, state enterprises, and the military establishment (see The Power Structure, ch. 4). Since his appointment to cabinet rank in 1971, however, Widjojo has had especially easy access to the president. He and other prominent technocrats-especially the group of United States-trained economists, including Minister of Finance Ali Wardhana, Minister of Mines and Energy Soebroto, Minister of State for Administrative Reforms Sumarlin, and Minister of State for Supervision of Development and the Environment Emil Salim-were the most influential voices in matters of macroeconomic policy. The technocrat's contribution to national decisionmaking was especially important in the drafting of economic plans and the state budget. Although by no means a planned economy like those of Eastern Europe and the Soviet Union, Indonesia's economy received direction and impetus from a series of five-year economic development plans mapped out by Bappenas and projected into the 1990s. According to the long-range planning scheme, the first of these, Repelita I (FY 1969-73), was to emphasize the development of basic agriculture; Repelita II (FY 1974-78), balanced agricultural production; Repelita III (FY 1979-83), industries supporting agriculture; Repelita IV (FY 1984-88), basic industry; Repelita V (FY 1989-93), defense and security industries; and Repelita VI (FY 1994-98), balanced and self-sustaining production in all sectors. As each plan was implemented, detailed targets for investment and production growth were agreed upon by all the government agencies concerned. Each year the government prepared a progress report charting the achievements and problems experienced in the implementation of the plan. Repelita figures were meant to be targets and signals of government policy rather than strict prescriptions. Moreover, the government has admitted that the statistical base for calculating relevant economic data has been weak. In the mid-1970s the Central Bureau of Statistics completely revised the national income accounting system based on an improved set of input-output tables for the economy. Periodic improvements in this statistical matrix have greatly facilitated macroeconomic planning and policymaking. At the same time, there were still large gaps in the available economic data, particularly relating to the agricultural sector. To strengthen the basis for national planning and to promote regional development, which became a special concern under Repelita III, a Regional Development Planning Board (Bappeda) was established by Bappenas in each of 10 locales in 1974. Despite staffing problems, they were able to help provincial and local governments select appropriate development projects. Fiscal Policy The best indicator of actual government economic policy is the central state budget. Total expenditures have grown from less than 16 percent of GDP on average under Repelita I to more than 26 percent of GDP under Repelita III (see table 5, Appendix). Since the start of Repelita II, about half of all expenditures have passed through the development budget, which comprises capital spending on specific projects or loans earmarked for capital projects developed by local agencies. Routine expenditures make up the other part of government spending, mostly for expenses incurred in the administration of government services. The share of routine expenditures in the overall budget has tended to diminish, and in the planned budget for FY 1982 such expenditures were expected to be less than 45 percent of government spending for the first time. In the past, personnel and materiel costs have made up the bulk of routine spending, but under Repelita III the costs of servicing the government's external debt and of subsidizing purchases of foodstuffs and petroleum products for domestic consumers increased substantially. In FY 1980 the oil subsidy alone amounted to over 17 percent of all routine expenditures. Development spending, by contrast, has taken an increasingly large share of the national budget. Under Repelita I and Repelita II government investment went toward developing a basic infrastructure of transportation, communications, and power generation and toward strengthening agricultural production by the expansion of irrigation projects and the provision of fertilizer. Under Repelita III the emphasis shifted somewhat to investment in industry and for education, health, housing, and water facilities. Expenditures on development services provided by the central government have also increased, while spending channeled through local governments in the form of Inpres subsidies has decreased as a share in the total. Although only a small part of the budget has been devoted to manpower and transmigration (see Glossary), expenditures in these areas were rising rapidly (see table 6, Appendix). The government remained concerned about regional development, and transfers from the national treasury accounted for more than 80 percent of the revenue of the provincial and local governments, which had limited taxing authority. The central government was extremely sensitive to redressing past imbalances between Java and the Outer Islands (see Glossary). Since FY 1974, for example, the per capita budgetary expenditure devoted to direct Inpres grants, the presidential grants for public works construction, has consistently favored Kalimantan, Irian Jaya, the Malukus, and the less developed provinces on Sumatra and Sulawesi. In FY 1981 the per capita Inpres expenditure for the new province of East Timor was two and one-half times the national average and nearly seven times that for Java. At the same time, however, bank credit has gone disproportionately to areas having a developed industrial infrastructure or large resources. The per capita outstanding bank credit to Jakarta alone at the end of 1980 was more than seven times that for either East Kalimantan, South Kalimantan, or South Sulawesi, respectively, the provinces receiving the next largest amounts of bank loans. On the revenue side of the national budget, increased receipts from taxes on the profits of oil corporations have enabled the government to finance more and more of its development budget through government savings. During Repelita I the excess of domestic revenues over routine expenditures financed about 45 percent of development spending. This proportion rose to 64 percent in Repelita II after the oil price hikes of 1973 and reached 75 percent in FY 1980. Revenues from corporate oil taxes alone increased from about 24 percent of total expenditures in Repelita I to about 60 percent in Repelita III. Dependency on oil tax revenues, however, had a negative effect on the development of the fiscal system. In the case of a shortfall of oil exports and profits, as occurred in late 1981 and 1982, the government was hard pressed for alternate sources of revenue. Except for the oil industry, however, the domestic tax base was narrow. During the 1970s revenue from personal income taxes, collected almost exclusively in the cities, grew less rapidly than the nation's GDP. The same has been the case for the domestic sales and excise taxes. Only the tax on non-oil exports and corporate revenues kept pace with the growth of the economy. Booth and McCawley point out a number of shortcomings in the fiscal system. First, the government's tax policies have caused inefficiencies in the allocation of economic resources. Because the personal income tax was enforceable only in large-scale, modern enterprises and was levied mostly on employees, it had the effect of a payroll tax, raising the relative cost of labor and discouraging labor's use in modern enterprises. The withholding tax, a modified value-added tax designed to make up for widespread tax evasion among many companies, tended to discriminate against firms that did not own their own distribution network. More importantly, the taxes on foreign trade, which favored imports of raw materials and capital goods, biased industry toward capital-intensive methods (see Trade Patterns, this ch.). A second shortcoming was the tendency to use fiscal policy primarily as an automatic means to gather revenue, rather than as a tool for broader economic policy, such as the control of inflation. Revenue targets have seldom been adjusted to account for economic fluctuations, and actual receipts have been wide of the mark of planned objectives. This inability to use fiscal policy as a means of fine-tuning the economy, however, was common among less developed countries. Finally, the administrative inefficiency and complexity of the fiscal system imposed real costs on the economy. Some forms of taxation, for example, the land tax, have cost more to administer than their revenues could support. Others, such as the personal income tax that has 19 progressive taxation brackets, were virtually unenforceable with the available staff. The most insidious aspect of the fiscal system was the frequent levying of unofficial taxes or fees by military or civilian bureaucrats (see Participation in the Economy, ch. 5). Because of its unofficial nature, the cost of the latter to the economy was impossible to assess. It was not clear how easy it would be to redress these failings of the tax system, nor was it clear how willing the government might ever be to reform the system. For example, the quickest and surest way to increase non-oil tax revenues was to raise indirect taxes on the sales of goods and services, which the government did in 1982. Such increases made the system more regressive, i.e., had a disproportionately negative effect on the purchasing power of low income groups-and progressiveness was perhaps the best feature of the tax system at the start of the 1980s. Trying to raise revenues through the income tax was also problematic because a large investment in administration was required, although a simplification of the existing tax schedule might go a long way toward improving collections. Likewise, the analytical difficulty of measuring the precise extent of budgetary deficits made it hard to use fiscal policy as a macroeconomic management tool. Because of these problems and complexities, the economic administrators have opted to manage the economy principally through monetary policies and discretionary regulation. Money and Banking It is not easy to distinguish where government financing ends and banking begins in Indonesia because the banking system is almost completely under state control. As of March 1981 seven state banks at the national level accounted for almost 80 percent of all the banking system's assets, 78 percent of its funds, and 79 percent of outstanding loans. There has been slightly more reliance, however, on decentralized and market-oriented practices since the Sukarno years, when all state banks were merged into one giant conglomerate. Since the promulgation of the Central Banking Act of 1968, Bank Indonesia, which had functioned previously as the central bank and a commercial bank, became almost exclusively a central bank, having the sole responsibility for regulating the monetary system. The state banks included five commercial banks having over 700 offices throughout the country-the largest number of which belong to the People's Bank of Indonesia (BRI), primarily a rural facility. In addition, the Development Bank of Indonesia (Bapindo) and 26 regional development banks had the special task of channeling financial resources into development projects at low rates of interest. One state savings bank and more than 5,800 rural banks and credit unions mobilized savings from private households and individuals to add to the deposits on hand in commercial banks. The state banks have had a special relationship with Bank Indonesia, which not only guaranteed their deposits but also provided them with so-called liquidity credits for special purposes. Bank Indonesia also continued to lend to priority state enterprises and agencies. The private banking sector consisted of about 75 domestic commercial banks and one development bank, 11 foreign banks or joint ventures, and two domestic savings institutions. Few of the domestic banks resembled commercial banks, serving instead the financial needs of small groups of entrepreneurs-often Chinese. Their number had diminished from over 100 in the late 1960s to 75 banks in 1981; about 20 have developed into full-service banks. The government permitted the relatively free movement of foreign exchange. As Indonesia's banking system has improved, foreign funds have been attracted into Indonesia, and domestic enterprises have sought loans overseas (see Aid, Loans, and Investment, this ch). Since 1972 the Department of Finance, which set policy for the monetary system, has allowed the establishment of nonbank financial institutions and in 1977 revived the stock exchange (see Entrepreneurship, this ch.). The purpose of these institutions has been to mobilize long-term funds, which were in extremely short supply. Many of these companies were joint ventures between domestic and foreign banks. Bank Indonesia was responsible for implementing the monetary policy decided upon by the Department of Finance in consultation with other economic agencies. The monetary authorities controlled the level of credit through the conventional central bank mechanisms of supervising the issuing of reserve money and requiring reserve ratios. Since the large oil price increases of 1973 and 1974, however, the central bank has resorted to direct, quantitative controls over bank credit through the imposition of credit ceilings. These ceilings were based upon the total assets of each bank but were also adjusted according to the kind of loans granted. In conjunction with the direct control over the interest rate structure, credit ceilings gave the monetary authorities a powerful tool in directing credit to priority areas in the economy. Without such preferential direction of credit flows, many loans to farmers and pribumi entrepreneurs would not have been possible. It has been difficult for the government to balance the need to allocate credit efficiently with the desire to provide preferential credit for development purposes. Loans made in the latter category frequently were in arrears, necessitating additional credit. The obvious result of these policies has been a rapid increase in the nominal money supply (see Glossary), which has kept the rate of inflation relatively high. Unlike the hyperinflationary experience of the Sukarno period, however, expansions of the money supply have had a diminished inflationary effect on the economy. Since 1969 a 1 percent change in the money supply has resulted in only about a 0.5 percent change in the price level. Economist Stephen Grenville explains this phenomenon as a change in the preference of consumers from a desire to spend money to a need to maintain high bank balances. The government's ability to save much of its large surpluses of foreign exchange has been another means of controlling the rise in prices. According to the Jakarta consumer price index, prices rose by an average of 14.8 percent per year in the 1970-80 period. Regulation Besides the conventional instruments of fiscal and monetary policy, the government had broad regulatory powers by which it could influence the economy. Backed by either presidential or ministerial decree, these regulations were highly discretionary. The most significant regulatory measures appeared to be those directly or indirectly affecting prices and those concerning investment approvals and licensing. Direct price controls were applied to only a select number of commodities in 1982, but from time to time the government has attempted to regulate an array of prices. A major effort occurred in 1978 following the devaluation of the nation's currency (see Foreign Economic Relations, this ch.). In order to restrain the inflationary effect of rising import prices, the government ordered a general price freeze for essential products, such as foodstuffs, cigarettes, textiles, drugs, and construction materials, lifting these restrictions gradually. In 1982 the most significant commodities under government price regulation were petroleum products, fertilizer, and rice. As late as December 1981 domestic prices for fuel oils, including kerosine for household use, were about two-thirds of the international price for such commodities. Cheap domestic prices prompted the consumption of oil products to boom at a rate of about 12 percent per year during the 1970s, depleting the nation's most valuable natural resource at less than a maximum rate of profit. In January 1982 the government took the politically unpopular step of raising domestic petroleum prices so that some products, such as airplane fuel and gasoline, cost more at home than abroad. The prices of fuel for industry and for household use, however, were kept at less than one-third of the international rates. The prices of agricultural goods and fertilizer were manipulated by the State Logistics Agency (Bulog-see Technical Support Programs, this ch.). The government was also able to control indirectly the prices of many commodities through its influence over state enterprises. Not only did the government direct the pattern of investment through allocations from the national budget, but it also controlled private investment activities. The Investment Coordinating Board (BKPM) screened applications from both domestic and international investors, except in the petroleum, forestry, and banking industries, which were handled by specialized agencies. From April 1968 to September 1981 the BKPM approved 3,682 domestic projects valued at about Rp8 trillion, of which only Rp2.2 trillion had been invested as of March 1982. Over 78 percent of all these investments were in manufacturing, about 44 percent near Jakarta. The BKPM based its decisions to approve proposals on whether they fit into the government's overall priorities, which were publicized in an annual list. Licensing requirements were a problem even at the local level, especially for small-scale entrepreneurs who lacked sufficient knowledge or influence. The growth of licensing requirements provided numerous opportunities for graft. In 1978 the government streamlined the operations of the BKPM, making applications for investment a one-step process. No nationwide regulatory reform had been enacted, however. Agriculture, Forestry, and Fishing Despite its diminishing contribution to the national income, agriculture remained vital to the well-being of the majority of Indonesians at the start of the 1980s. Nearly 80 percent of the population was rural, and two-thirds of rural households depended chiefly on agriculture for their incomes, as did about one-tenth of urban households. Almost 16 million smallholder households grew subsistence and cash crops on some 16 million hectares of land, while about 1,800 agricultural estates, commanding 2.2 million hectares of property, produced such crops as rubber, sugar, tea, palm oil, and tobacco. Exports of these commercial crops averaged about 80 percent of the nation's non-oil exports. Land Use, Tenure, and Development The diversity of climatic, topographical, and soil conditions supports a range of agricultural production. Regional and seasonal temperature variations are not significant, but rainfall varies appreciably. Most parts of Sumatra, Kalimantan, and Irian Jaya have wet tropical climates and receive heavy rainfall most of the year. Java and the other islands are dominated by the seasonal monsoon and have less rainfall (see Geography and Population, ch. 2). Such current and detailed land use and soil survey data were unavailable-the next in a series of decennial agricultural censuses was scheduled for 1983-estimates for 1978 suggested that about 9 percent of the total land area was devoted to the cultivation of annual and perennial crops. About two-thirds of the terrain was too steep for most uses other than forestry or pasturage, and some 22 percent of the total land area was swampland (see fig. 5). Land use patterns varied from region to region. Rich volcanic soils on Java, nearby Madura, and Bali have attracted the most intensive cropping patterns; some observers even concluded that the number of agricultural holdings exceeded the area suitable for farming. The opposite was the case on the Outer Islands. Some 42 percent of the potentially arable land on Sulawesi, 61 percent on Kalimantan, 65 percent on Sumatra, and 96 percent on Irian Jaya and the Malukus had yet to be cultivated. For generations there has also been a difference between the irrigated rice culture (sawah) predominating on Java, Madura, and Bali and the dryland farming or shifting cultivation (see Glossary) on the other islands. This distinction continued into the 1980s, although sawah farming had spread to Sumatra and elsewhere (see table 7, Appendix). Owner-operated, smallholder farms predominated, even in the so-called estate crop sector, where over half of the production of tree crops came from smallholder farms. Most agricultural estates were owned and operated by government enterprises, but some were in private hands. About 11 million hectares of smallholdings were devoted to the production of food crops, but they averaged less than one hectare in size-barely half a hectare on Java. According to official census data, the number of landless farm households has increased, reaching 3 to 4 million in 1980. On Java alone, official estimates in 1980 placed 30 percent of all farm households in the landless category, and other estimates ran to more than 50 percent. Since land was in such high demand, it was not unusual to find the persistence of various forms of land leasing, sharecropping, and tenancy. Land reform has received little emphasis since the 1960s. The Basic Agrarian Law of 1960, a major element of Sukarno's policies, set a maximum ceiling of five hectares of sawah and six of dryland, the excess to be redistributed to the needy. Given the already crowded and fragmented nature of rural holding in 1963, only about 6 percent of the smallholder lands on Java and Bali-less than 400,000 hectares-were eligible for redistribution. As many as 1 million hectares may have been distributed under the program, but of this total a significant portion was apparently later reclaimed by the original owners after 1965. Most of the land permanently distributed was presumably from government holdings (see The Transition to Guided Democracy, ch. 1). In the less populous Outer Islands, land reform was not an important issue because there was much unalienated land and a tradition of communal ownership. Eschewing radical measures, such as land reform, the Soeharto leadership has attempted to stimulate development in agriculture by improving the physical, technical, and institutional supports for production. Land development schemes have taken the form of public works to expand and improve irrigation systems and the opening of new lands on the Outer Islands. Irrigation and drainage, traditional features of Indonesian agriculture, were especially important not only for the cultivation of paddy rice but also for such crops as sugarcane, soybeans, and maize. Some 5 million hectares of land were irrigated in 1980, although the actual area serviced decreased in the dry season. Village systems, built and managed by the local community with little professional advice, covered one-fifth of the irrigated area. The Department of Public Works controlled the rest of the system through provincial offices. About half of these systems were "technical" systems, having separate drainage and supply networks, permanent and well-kept facilities, and water measurement devices at several points in the system. "Semi-technical" systems made up another 23 percent of the total public network, and "simple" systems, having no measurement devices and the least permanent structures, made up the rest. In addition to these gravity systems, the government has opened up some 240,000 hectares of tidal irrigation networks in the coastal swamplands of Sumatra and Kalimantan. Government policy focused on improving the existing irrigation systems, many built in the colonial era, and the rehabilitation of about half of the major systems, mostly on Java, was completed or under way in 1982. Repelita III called for the construction of an additional 2 million hectares of tertiary networks to be connected to existing systems. Problems of inadequate drainage, soil erosion leading to siltation, and poor rural transportation also demanded attention. It was difficult for farmers to contribute their time and labor to the solutions of such problems, and the Department of Public Works lacked a sufficient number of trained engineers to tackle all of the construction projects. Often the only irrigation projects completed were those receiving foreign assistance. Management problems plagued the tertiary systems at the subdistrict and village levels, where local authorities lacked the requisite skills and accountability to distribute water in a timely and equitable fashion. In some areas a water resource management association made up of farmers themselves had come into existence, but these had yet to become widespread. Transmigration was another systematic way of developing the land outside of Java for agriculture (see Forces For and Against Change, ch. 2). Through the early 1970s the transmigration program focused on opening new lands for irrigated rice farming, which the government promised to irrigate in due course. Under Repelita II swampland reclamation increased, most of the new lands being opened for rain-fed rice cultivation. Beginning in 1978 the government implemented a series of estate projects, designed to rehabilitate commercial tree crops on existing estates and extend planting to nearby plots farmed by smallholders. The main emphasis of the vastly expanded transmigration program for Repelita III was to open areas for a combination of dryland food and tree crop farming. The transmigrant families were usually granted a parcel of land of more than two hectares and also received housing facilities, packages of farm inputs, and food subsistence for at least a year. Transmigration programs succeeded in moving 46,000 households under Repelita I, another 81,000 under Repelita II, and over 90,000 in the first two years under Repelita III. The official programs had also attracted scores of unofficial migrant families. The programs, however, were expensive and difficult to manage. Only on the estate crop projects could the government ever hope to recoup the costs of moving such large numbers of people. In 1979 delays occurred during the site selection process, and the government had to issue a series of directives to clear up flaws in the central decisionmaking system. The Department of Public Works had nonetheless begun to identify sites for the 500,000 households scheduled to be moved during Repelita III. Specialized agencies were focusing on the development of smaller transmigration projects of fewer than 2,000 families each, and government estates had begun to locate tree-crop sites for 75,000 households. Nonetheless, it was unlikely that the targets would be achieved, even though the government reported that 500,000 families had signed up for the program and that it had enlisted the aid of the World Bank (see Glossary). Technical Support Programs The provision of modern agriculture inputs and extension services has led to what has been called a "green revolution" in Indonesian agriculture, particularly in the cultivation of rice. Higher yields have been achieved by utilizing quick-maturing and high-yielding varieties of seeds, more fertilizers and pesticides, and better planting methods. The major means of providing these technical supports have been two extension programs-the production credit program, Mass Guidance (Bimas), and the mass extension program, Mass Intensification (Inmas). The former was developed in the early 1960s and provided liberal amounts of bank credit to farmers; the latter was a modification introduced in the 1970s after the credit program became too costly. A complex institutional network managed these programs. The local representative of the BRI was responsible for managing the bulk of the Bimas program, which involved credit from this rural banking facility. Total Bimas credit to rice farmers reached Rp50.1 billion in FY 1980; credit to farmers of secondary crops totaled Rp6.2 billion. The number of farmers covered under these schemes, however, has fallen since the mid-1970s as the number of accounts in arrears multiplied. All farmers were supposed to have equal access to loans, but smaller farmers found it difficult to get credit. Farm cooperatives were responsible for distributing the seed, fertilizer, pesticide, and equipment needed for the members of the program, but in the areas where cooperatives had yet to be established, private traders were allowed to handle these inputs. Preliminary forms of village cooperatives (BUUD) were developed slowly in the late 1960s, although Sukarno had experimented with various forms of cooperatives at an earlier date. Following a major shortfall in the rice harvest in 1972, however, Bulog was unable to procure enough rice to keep prices at acceptably low levels, and the BUUDs were created overnight to fulfill Bulog's mission. Thereafter, the weak organization of the BUUD network and some farmer hostility toward this institution caused the government to consolidate the BUUD into village unit cooperatives (KUD), having full legal status. By 1981 there were 4,462 KUDs and 700 BUUDs, having 1.3 million shareholders and 3.6 million candidate members. In contrast to the BUUD system, which provided one cooperative per subdistrict, the KUD was often a smaller unit. The cooperatives maintained close links with the subdistrict authorities, agricultural extension agents from the Department of Agriculture, the state-owned fertilizer and seed companies, and Bulog, whose director was also the junior minister for cooperatives. Whether purchased with cash or with vouchers obtained through the Bimas program, new seeds, fertilizers, pesticides, and labor-saving machinery became increasingly widespread. The consumption of chemical fertilizers and pesticides increased by over 16 percent per year during 1969-80; over 51 percent of the 1980 rice crop came from high-yield seeds, and another 10 percent came from improved local varieties. Agricultural mechanization was proceeding more slowly, but mechanical rice threshers, hand tractors, and hullers were becoming prevalent, if not on individual farms, than at the KUD facilities. A temporarily suspended credit program for the purchase of mechanical tillers was resumed in 1982. Bulog, run by a military officer, was one of the most powerful economic institutions in the country. It was responsible for procuring enough rice for the government to keep its price level set each year by a special coordinating committee. The rice price was calculated to be kept as low as possible for the benefit of the urban consumers, while maintaining a high rate of return for farmers. In addition, fertilizer and pesticide prices, which were heavily subsidized, were adjusted in line with the rice procurement price. Analysts have found, however, that Bulog's control of 20 to 25 percent of rice purchases did not keep the prices above the floor level for farmers not belonging to a KUD. Bulog also purchased other staple food products. Agricultural extension was the domain of the Department of Agriculture and its Agency for Education, Training, and Extension. The extension agents themselves, however, were part of the local government bureaucracy and responsible to different agencies at the national level depending on their lines of expertise-food crops, estate crops, animal husbandry, fisheries, and forestry. The extension workers included subject matter specialists trained at the college level; middle-level extension workers, also having a college degree but with less specialized knowledge; and field workers, who were usually the graduates of senior agricultural high schools. Each field worker was assigned 16 farm leaders who were instructed to contact 20 farmers each; these 20 farmers, in turn, transferred their knowledge to five more farmers. In actuality, most field workers were able to establish contacts with a maximum of 10 farmer leaders, giving them control over a network of no more than 1,000 farmers each. There were about 12,000 extension workers in 1981. Agricultural research, which was vital to the extension effort, was administered by the Agency for Agricultural Research and Development and carried out at research institutes and centers around the country. Under Repelita I and Repelita II, research focused primarily on wet rice, rubber, and oil palm. Since the start of Repelita III, attention has shifted to secondary food crops, upland rice, mixed cropping patterns, livestock, forestry, fisheries, agricultural economics, and food processing. A decision to regionalize most of the research institutes in 1980 was leading to the development of crop varieties and farming methods tailored to suit local soil and climate conditions. The main institutes at the start of the 1980s were the prestigious Central Research Institute for Agriculture, located at Bogor on Java, and specialized institutes for the studies of horticulture, industrial crops, inland fisheries, marine fisheries, fish technology, animal husbandry, animal health, forestry, forest products, estate crops, rubber, tea, and cinchona. There were also research centers dealing with soil, agricultural economics, and data processing. Although there appeared to be an adequate supply of upper level scientists and technicians having specialized expertise in agricultural research, the education system could not produce the requisite number of middle- and lower level extension agents. In 1980 there were 99 senior secondary schools specializing in agriculture, of which the government reported only 15 were providing adequate training. Preservice training was particularly insufficient for forestry technicians and female extension agents engaged in rural home improvement programs. There were 23 permanent in-service training centers providing training to about 5,650 agricultural department personnel per year, of which 17 had been improved through foreign assistance from the Food and Agriculture Organization of the United Nations. Each year, almost without fail, evidence surfaced of technological improvement in agriculture. More difficult to measure were the sociological changes that either accompanied or impeded this modernization. One change that seemed to be occurring on Java was the decline of the share system, or bawon, whereby numerous kin or neighbors would harvest an individual farmer's crop for a share of the total. These harvesters-many of them women-used a small knife and would often destroy a good portion of the crop with their trampling. There were strong social pressures for the farmer to use as many harvesters as possible. More and more farmers were abandoning this system and selling their crops to a middleman, who brought in an efficient team of wage laborers to harvest the crop using sickles. Many observers have noted, however, that Indonesian agriculture remained much more labor intensive than that practiced elsewhere in Southeast Asia, despite evidence of displaced agricultural labor in some areas. [See Production of Rice: The staple of the Indonesian diet, has been of major interest to development planners. Courtesy Resources Management International] Another vestige of the past was the typical farmer's reluctance to plant a second or third crop once a good harvest, sufficient to last for the year, had been laid away. This was compounded by the traditional unwillingness of the Javanese to raise their economic status substantially above that of their neighbors. Although these social factors may have impeded the increase of production on some farms, traditional kinship patterns and the influence of patron-client relationships on economic activity were so varied and complex that they defied generalization (see Ethnic Groups, ch. 2).