Indonesia’s spirited bid to drain corruption

The Malaysian Insider

JAKARTA, Dec 13 — The sign at the Grand Hyatt Hotel said it all: “Due to the shortage of certain beverage products within Indonesia, many popular items are unavailable at the present time... This predicament is beyond our control and we are communicating with the concerned authorities to try and resolve this situation.”

The lobby lounge bar in Jakarta's premier five-star hotel had run out of Scotch, gin, vodka and all other hard liquor. It is the same situation, to varying degrees, in many hotels and retail outlets across the Indonesian capital — and on the tourist island of Bali as well.

The consumption of alcohol, even by only a small percentage of the population, has always been a lingering issue in a Muslim-majority nation where beer advertising is treated like that for cigarettes: The brand name can be used, but not the product itself.

But only now is it dawning on drinkers that what they have been imbibing all these years had been either smuggled into the country or had escaped the full duty because of cosy arrangements between importers and the notoriously corrupt Customs Department.

Finance Minister Sri Mulyani Indrawati's clean-up of the Customs Department has changed all that, elevating the price for a bottle of wine or liquor by 300 to 500 per cent and dissuading distributors from buying new stocks.

The result: glum aficionados contemplating barely-drinkable shiraz, sky-high whisky prices — and a trouble-weary Bali tourist industry trying to figure out what impact this latest bombshell will have on its lifeblood.

Previously, two state-owned trading companies, Sarinah and Perusahaan Perdagangan Indonesia (PPI), were responsible, respectively, for importing duty-free and duty-paid alcohol.

But when auditors found PPI stickers on smuggled liquor in mid-2006, it quickly became clear that the company was colluding with Customs in depriving the state of an estimated 2.6 trillion rupiah

(RM790 million) in duties a year.

PPI lost its licence as a duty-paid importer, which meant that there were no alcohol shipments between November 2006 and November last year — a few months after Sarinah was finally given the job of performing both functions.

The booze blockade didn't end there, however. Already hit by a plunging exchange rate, the 16 designated distributors have been willing to buy new stocks at the full duty-paid prices until it is determined if they are here to stay.

Banking on past experience, many are hoping the black market will eventually return to business as usual. But such optimism ignores the fact that, unlike all her predecessors, Indrawati is deadly serious about stamping out smuggling and corruption.

Just how much she means business can be seen in this year's revenue collection, which is projected to top 535 trillion rupiah — a whopping 25.5 per cent jump over last year's takings.

Hotel associations are trying to persuade Indrawati to end the import quota system and to lower duties for wine and spirits, pointing to the harm that soaring prices are having on tourism and what they believe will be revenues as well.

No wonder. Top-shelf Johnny Walker Black Label Scotch whisky has gone from US$35 (RM125) to US$190. Red Label and other brands containing 15-20 per cent alcohol retail at more than US$50 a bottle. A bottle of cheap US$5 wine now costs US$20 to US$30.

Previously, more than 60 per cent of the wine came from what some call the “grey market”, in which distributors mixed up legally and illegally imported bottles as a way of bringing down prices.

Now that the government has ended that racket, wine is subject to 300 per cent duties, including a 150 per cent import tax and a 40 per cent luxury goods tax, in line with its alcohol content.

The Finance Ministry is not ignoring the outcry. It is now studying a simplified system under which importers will be charged a specific import tax and excise duty based on volume rather than alcohol content — a practice followed in Singapore and elsewhere.

But alcohol is a touchy subject during a time when hardline Islamic groups are liable to seize on any issue. Says one Western trade official: “Indonesia says it's not a Muslim state, but every time we try to deal with officials on this they say it is very sensitive.”

What makes the issue even more ticklish is that this is election time. Anxious to pander to Muslim voters — as they were with the unpopular anti-pornography law just passed — politicians are hardly inclined to be sympathetic about anything to do with alcohol.

Some wine and spirits are still available, but retailers say much of these are either counterfeit or suspected to come from raids that Customs officers have conducted on outlets stocking alcohol without the proper stickers.

Local liquor — basically flavoured, watered-down industrial alcohol — has not been touched in the revenue drive, despite the fact that manufacturers grossly under-invoice the 10-15 million cases sold each year.

Like the Grand Hyatt, most major hotels have precious little stock, with a five-star establishment selling a small glass of mediocre red for 110,000 rupiah, or 130,000 rupiah when value added taxes are added on.

Stand-alone bars, which do not have the same overheads, are generally offering the same glass for about 60,000 rupiah, but that represents a profit of only 10 per cent — hardly enough to keep heads above water.

Many customers are switching to beer, with the two principal brands, Bintang and Anker, seeing an 11 per cent increase in sales this year in a country that normally consumes only 2.1 litres per capita a year — compared to 135 litres in Australia. — Straits Times Singapore

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