Multimedia Mania/abacus-multimedia-mania.iso/dp/0021/00214.txt

Text File | 1993-07-27 | 39KB | 617 lines

$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).