This article was downloaded by: [McGill University Library]On: 13 November 2014, At: 11:55Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number:1072954 Registered office: Mortimer House, 37-41 MortimerStreet, London W1T 3JH, UK

Bulletin of IndonesianEconomic StudiesPublication details, includinginstructions for authors and subscriptioninformation:http://www.tandfonline.com/loi/cbie20

An Economic Survey ofNorth SumatraAmudi Pasaribu & Bistok SitorusPublished online: 18 Aug 2006.

To cite this article: Amudi Pasaribu & Bistok Sitorus (1969) An EconomicSurvey of North Sumatra, Bulletin of Indonesian Economic Studies, 5:1,34-48, DOI: 10.1080/00074916912331331332

To link to this article: http://dx.doi.org/10.1080/00074916912331331332

PLEASE SCROLL DOWN FOR ARTICLE

Taylor & Francis makes every effort to ensure the accuracy ofall the information (the “Content”) contained in the publicationson our platform. However, Taylor & Francis, our agents, and ourlicensors make no representations or warranties whatsoever asto the accuracy, completeness, or suitability for any purpose ofthe Content. Any opinions and views expressed in this publicationare the opinions and views of the authors, and are not the viewsof or endorsed by Taylor & Francis. The accuracy of the Contentshould not be relied upon and should be independently verifiedwith primary sources of information. Taylor and Francis shall notbe liable for any losses, actions, claims, proceedings, demands,costs, expenses, damages, and other liabilities whatsoever or

howsoever caused arising directly or indirectly in connection with,in relation to or arising out of the use of the Content.

This article may be used for research, teaching, and privatestudy purposes. Any substantial or systematic reproduction,redistribution, reselling, loan, sub-licensing, systematic supply,or distribution in any form to anyone is expressly forbidden.Terms & Conditions of access and use can be found at http://www.tandfonline.com/page/terms-and-conditions

Dow

nloa

ded

by [

McG

ill U

nive

rsity

Lib

rary

] at

11:

55 1

3 N

ovem

ber

2014

AN ECONOMIC SURVEY OF NORTH SUMATRA

North Sumatra (which until a few years ago included the Special Region of Atjeh) has traditionally been one of Indonesia’s most important producers of export crops and still accounts for a substantial proportion of the nation’s foreign exchange earnings. The province covers an area of 70,787 square kilometres ( 3 . 7 per cent of the total area of Indonesia) and has an cstimated population of a little less than 6.5 milli0n.l Medan, the capital of the province and its largest city, has a population of well over half a million, and is the centre of business activities and head- quarters of the large agricultural estates.

The broad coastal plains of eastern Sumatra were opened to large-scale estate agriculture by the Dutch in the late nineteenth and carly twentieth centuries,~ and Javanese and Chinese were brought in to supply labour for the tobacco, rubber, and palm oil estates.

The estates, which produce mainly for export, are located almost entirely in East Sumatra, one of the province’s two residencies; the other, Tapanuli, is almost entirely under peasant cultivation. The colonial network of roads and railways was built to serve the estates, so that while East Sumatra was reason- ably well served with transportation facilities, Tapanuli was not.

The peasant cultivators both in East Sumatra and in Tapanuli produce, for the export and domestic markets as well as for their own subsistence needs, rubber, coffee, patchouli (nilam) oil, and benzoin (kemenjan) as well as other agricultural crops. POPULATION AND EMPLOYMENT

The original population of North Sumatra was made up of Batak and Melayu tribes, but the Javanese and the Chine*,

‘This estimate is calculated from the 1961 census base at a rate of increase of 3 . 8 per cent per year, which is considerably higher than the estimated national rate of 2 .8 per cent per year.

34

Dow

nloa

ded

by [

McG

ill U

nive

rsity

Lib

rary

] at

11:

55 1

3 N

ovem

ber

2014

who began arriving in large numbers around the turn of the century, are now important elements in the province’s popula- tion.

The labour force is, according to Department of Labour estimates, about 2.3 million working or actively looking for work, plus another 1.9 million designated as ‘potential’ labour force, such as students, housewives, etc.z It is estimated that some 65,000 school leavers join the labour force every year. Total unemployment was estimated in 1965 at about 20,000 and another 300,000 were said to be only partially employed.3 These figures do not include the many university ‘students’ who continue their education simply because they cannot find a job.

Improvement and modemisation of agriculture will help to solve the problem of unemployment among the less well educated part of the population. It will be much more difficult, though just as important, to attract to agriculture the better educated young people to whom agriculture is not now an attractive field.

Paradoxically, there is a shortage of labour on the estates which can be explained, at least partly, by the present nnattrac- tive wages and working conditions. In the past, most of the estate workers were recruited from Java, but this is no longer being done because of the high cost of such a program. Planta- tion workers in North Sumatra have traditionally ranked lowest in social status and, unless major improvements are made, plantations will continue to fmd difficulty in attracting workers from the local pop~la t ion .~

Agriculture is still by far the most important source of employ- ment in North Sumatra. The primary industries, agriculture, fisheries, forestry, and mining combined, accounted for 72.2 per cent of the employed labour force in 1961. This percentage fell to 70.7 per cent in 1965 and is believed to have remained

%The Department of Labour has defined the total potential labour force as the part of the population aged 10 and over, or about 65 per cent of total population.

response to inquiries on the source of these estimates, the representative of the Labour Department explained that they were ‘just estimates’. This may mean that they are guesses rather than estimates; the actual figures may be considerably higher or lower.

‘Improvements, especially in wage payment, can b: made by the plantations. Because of shortage of labour, some of the work on planta- tions is now given to contractors. The contractors, with their lower overheads, can hire enough workers at higher wages and still make profits, even if their work is to do the tapping of the old and the least productive rubber trees.

35

Dow

nloa

ded

by [

McG

ill U

nive

rsity

Lib

rary

] at

11:

55 1

3 N

ovem

ber

2014

at about the same level through 1968.5 The decrease in the percentage of labour in agriculture has not, as one might expect, been matched by an increase in the proportion of labour working in manufacturing industries. The share of manufacturing indus- tries in the labour force was 7 .6 per cent in 1961 hut had fallen to 6.1 per cent by 1965. It has probably fallen still lower since 1965 owing to closing down of plants in the manufacturing industries. The share of service industries in the labour force increased from 18.3 per cent in 1961 to 21.6 per cent in 1965.6 The increase can he explained at least partly by the boom in speculative trade during and prior to 1965, a period of acceler- ating inflation. With the price of rice controlled by the govcrn- ment and farmers' real income actually declining, many farmers changed their occupation, the majority taking up trading in second-hand articles, mediating in transactions in durable goods, etc. Goods were sold before they were bought.' Because of the increasing rate of inflation, people avoidcd keeping cash and bought land, gold, and durable goods to preserve the value of their assets, thus proT-iding a fertile soil for speculative trade.

The trend of labour shifting to the service industries has not bccn reversed since 1965. Most of the new investment by private capital owners in North Sumatra since 1965 has been in the service industries. Therefore, even though speculative trade bas greatly decreased since 1965, the relative share of tertiary industries in the labour force has probably remained on approxi- mately the same level. THE FOOD SITUATION North Sumatra is a major importer of food, much of it from abroad. The province can afford to import food as it produces a large amount of foreign exchange from its exports.

Usually the price of rice in Medan is well above that prevailing in Java, reflecting in part the relative scarcity of rice in North

6The figurer for 1961 and 1965 in this paragraph are estimates by the Department of Labour, North Sumatra, based on results of the 1961 census. They have not made any estimates for more recent years.

Perwakilan Departemen Tenaga Kerdja Sumatera Utasa, Medan. 'This is indicated by an anecdote of that time. Someone hinted to a

group of speculative traders that he would like to buy a car and asked the group to find one for him. Almost immediately the same person told another group that he had a car to sell. The two groups finally met, and a tentative agreement about the price and the size of komisi was reached. It was only when the confrontation between buyer and scllcr was actually to he made that they discovered that they had been duped.

36

Dow

nloa

ded

by [

McG

ill U

nive

rsity

Lib

rary

] at

11:

55 1

3 N

ovem

ber

2014

.-

Sumatra and also > fact that incomes are higher here than in Java.s For various reasons, however, food prices tend to be unstable. As Table 1 shows, there is considerable instability in the relationships between the price of rice and the prices of its usual substitutes, maize and cassava.O Most of this is due to unstable rice prices, which are due in turn to changes in exchange rates (most rice is imported from abroad), and to diffcrences from time to time in the availability of foreign exchange for rice purchase, in official rice price policies, and in authorising planta- tions to buy rice locally. At the end of 1968, for instance, the Medan rice price was below the Djakarta price as the estates were being asked to buy their needs, some 90,000 tons a year, from abroad and not locally.

TABLE 1 Food prices in Medan, I96047 (rupiahs)

Market prices per kilogram Index based on

price of rice=lOO

Rice Maize Cassava Maize Cassava 1960 June 8.75 4.00 1 .30 46 15

December 9.00 4 . 7 0 1.80 52 20 1961 June 9.80 6 .00 2.00 61 20

December 22.25 8.50 3.65 38 16 1962 June 40.00 15.40 7 . 0 0 39 18

December 150.00 40.00 25.00 27 17 1963 June 90.40 15.40 16.75 17 19

December 85.00 21.00 15.50 25 18 1964 June 70.00 40.00 10.00 57 14

December 250.00 150.00 20.00 60 8 1965 June 300.00 100.00 50.00 33 17

December 1.500.00 600.00 150.00 40 10

(New rupiahs) 1966 June 11.00 4 . 5 0 3 .00 41 27

December 12.00 5.00 4.00 42 33 1967 June 16.15 6.00 2.00 36 12

December 34.25 13.20 11.40 39 33

Source: Agricultural Extension Service, Medan.

In the period 1960-67 rice imports into North Sumatra were some 12 per cent of total consumption. Production has, however,

'At the end of January 1969, a day labourer earned Rp40 in Jog- jakarta, Rp70 in West Java, and Rp2OO in the Medan area.

'Neither maize nor cassava is imported. Imported rice has averaged 100,000 tons per year in recent years, but due to increased domestic production is a declining proportion of total supply.

31

Dow

nloa

ded

by [

McG

ill U

nive

rsity

Lib

rary

] at

11:

55 1

3 N

ovem

ber

2014

increased dramatically since 1950, at a rate considerably exceed- ing the rate of population increase (estimated at 3.8 per cent per year) in the same period (Table 2 ) .

TABLE 2 Rice Production in North Sumatra

Wet rice Dry rice Total 1950 -. ~ ~

Area (ha) 133 117 251 Production (tons) 313 142 454

Area (hz) 239 118 357 Production (tons) 592 151 743

1960

1967 Area (ha) 3 16 146 462 Production (tons) 934 232 1,166

Annual Rate of Increase 1950-67

Area ( % ) 4 . 9 1 .2 3 . 5 Production ( % ) 6.3 2 . 8 5 . 4

Area ( % ) 3 . 5 2 . 7 3 .3 1 9 6 M 7

Production (96 ) 5.9 5.6 5.8

Source: Agricultural Extension Service, Medan.

The main reason for the increased production of rice has been the substantial and continuing increase in the area planted to rice, particularly in paddy fields. Per hectare yields of rice have also risen since 1950 (from 2.35 to 2.95 between 1950 and 1967), and it is likely that these will rise even further in the near future owing to the Bimas program and to the introduction of the high-yield rice varieties IR-8 and 1R-5.

There would seem to be considerable potential for large and rapid increases in food production in thc province in the near future. Some things have already bccn done that will encourage this. Extension efforts have been stepped up and fertiliser has been readily available since mid-1967. Rice production could be further stimulated if the present instability in rice prices could be rcduced; if farmers could gct a higher price for rice (rice prices have often been too low to provide adequate incentive for increased production or to allow farmers to be able to afford to buy fertilisers and other production inputs); and if marketing institutions and infrartructure, especially transport, could be improved. Given these conditions, North Sumatra could quite

38

Dow

nloa

ded

by [

McG

ill U

nive

rsity

Lib

rary

] at

11:

55 1

3 N

ovem

ber

2014

soon become self-sufficient in rice (thus saving a substantial amount of foreign exchange) and farmer demand for a number of locally produced products could increase quite substantially.

MANUFACTURING INDUSTRY

Manufacturing industry in North Sumatra is still at a very low stage of development. With few exceptions, mainly in the textile industry, production processes are backward and the quality of the products not very high. The industries produce almost wholly for domestic, indeed local, markets.

'There are two offices in Medau supervising the manufacturing industries, Perwakilan DEPERDARIGA Sumatera Utara-Atjeh and Dinas Perindusteriau Rakjat Sumatera Utara. The industries supervised by the former are mostly of the assembling type (automobiles, motor cycles, tractors, machinery, radio and TV sets, sewing machines, etc.). Most of the parts are imported and only a few insignificant ones are locally made. This makes the industries highly sensitive to changes in import rcgulations, foreign exchange policy, and exchange rate fluctuations.

The group of industries supervised by the latter also depends on imported material but to a less extent. Its products are mostly non-durables such as food, drink, tobacco, textiles, etc. These industries are troubled by capital shortage and heavy taxation (legal as well as illegal). Forms of illegal taxation include uontri- butions to youth groups, an illegal road tax, tickets for shows

North Sumatra, 196748 TABLE 3 Capacity Utihation, Selected Industries,

Percentage of total capacity

1967 1968a Industry utilised

Food 61.4 71.3 Drinks 50.3 42.4 Tobacco 22.4 28.5 Textiles 24.4 44.4 Confectionery 22.0 37.6 Lumber 59.4 69.3 Printing press 94.8 84.9 Leathcr and leather goods 51.5 62.5 Rubber goods 37.9 51.2 Chemicals 68.0 74.0

aThe percentages of 1968 are estimates based on actual data from

Source: Dinas Perindusterian Rakjat Sumatera Utara, Medan. January to September of the same year.

39

Dow

nloa

ded

by [

McG

ill U

nive

rsity

Lib

rary

] at

11:

55 1

3 N

ovem

ber

2014

organised by civilian or military groups, money paid to officials to speed up the issue of licences, etc.

The majority of the industries in North Sumatra are working below capacity owing to shortages of raw material and import competition. The situation improved somewhat in 1968 com- pared to 1967 (Table 3) . Most of the industries showed an increase in the percentage of capacity used; this was not due to any decrease in their potential capacity but reflected increased production . lo

EXPORT AND IMPORT

Nearly 78 per cent of the total value of exports from North Sumatra is accounted for by estate products, particularly rubber, palm oil (as well as kernels), tobacco, fibres, and tea, and the rest from smallholder production of rubber, coffcc, nilam oil, copra, vegetables, and other agricultural crops (Table 4) .

The volume of non-oil exports from North Sumatra has shown a healthy rising trend in the last few years. But this has been

TABLE 4 Value of Exports by Commodity," North Sumatra, 1965-68

(percentage distribution)

Commodities 1965-66 1968

Rubber (plantations) 37.2 35.5 (smallholder) 18.5 1 8 . 2

22.2 3 .6 1 24.9 Palm oil (oil)

Tobacco 12.7 13.3 Tea 2 . 8 2 .6 Coffee 2 . 3 2.4 Fibres 0 . 5 0.7 Niirrm oil 1 . 0 0 . 6

(kernels)

Copra - 0.2 Vegetables - 0.2 Other 0.1 0 .5

ducts. These are reported direct to Djakarta.

Sumatera Utara, Medan, 1968.

a This table does not include the value of exports of petroleum pro-

Source: A N ~ U U ~ Report. Perwakilan Departemen Perdasangan

lo The majority of the industries are shown as having constant or larger potential capacity m 1968 compared t o 1967, but this may be due to the inability of Dinas Perindurterian Rakjat to get adequate figures for depreciatior, for 1967.

40

Dow

nloa

ded

by [

McG

ill U

nive

rsity

Lib

rary

] at

11:

55 1

3 N

ovem

ber

2014

more than offset by falling world prices, especially of rubber. As Table 5 shows, the volume of officially recorded exports rose by 20 per cent between 1961 and 1967, but their value fell during the same period by 15 per cent." Estimates for 1968 based on statistics for the first nine months show a further 12 per cent rise in volume but a 6 per cent fall in value.

TABLE 5 Volume and Value of Exports, North Sumatra, 1961-68

Year Volume ('000 tons)

Value ($ million)

1961 383.7 134.3 1962 342.2 114.3 1963 357.3 120.0 1964 372.9 114.0 1965 415.8 128.6 1966 488.1 145.6 19h7 458.9 114.2 1968 (est.)a 512.8 107.6

September.

Utara, Medan, 1968.

aFigures for 1968 are estimates based on actual figures ending

Source: Annual Report, Perwakilan Deparlemen Perdagangan Sumatera

Imports reported by the Department of Trade of North Sumatra include foodstuffs, textiles, building materials, fuel, chemicals, machinery, office materials, etc. Most of the imports of capital goods are made by the regional government, while private importers have been responsible for most of the imports of consumer goods.

INFRASTRUCTURE

Transport conditions in the region have been more of a bottle- neck than a stimulant to economic growth. The region's roads are of nineteenth-century quality in terms of western industria- lised countries. The length of the road network is still the same as before the war, about 7,539 km, of which over 4,000 km consist of tracks impassable for automobiles (Table 6 ) . There

[Editor's Note: These figures understate the value of exports from the province since they probably value them at check prices, thus excluding overprice receipts; they also exclude an unknown volume of 'smuggling', small-scale illegal exporting across the Malacca Straits, and larger-scale operations by military and civilians.1

41

Dow

nloa

ded

by [

McG

ill U

nive

rsity

Lib

rary

] at

11:

55 1

3 N

ovem

ber

2014

are less than 300 !un of road capable of taking loads of 5 tons and just over 1,500 km of roads capable of taking 3 ton loads. The best roads are good enough to takc traffic at about 40 miles per hour. On most roads, however, vehicles can travel at only about 10-20 miles per hour.

TABLE 6 Road Network in North Sumatra, I968 (kilometres)

Roads passable for four-wheeled vehicles Irnpass- Asphalt Non-asphalt able Total

East Sumatra 277 750 - 417 37 1,481 4,016 4,016

Tapanuli - 395 52 55 1,200 1,702

277 1,145 52 472 1.237 4,016 7,199

I1 111 IV ILI+IIIA IV IV

Nore: Class I1 : road capacity 5,000 tons. 111: ,, ,, 3,500tons. IV: ,, ,, 2,000tons.

Source: Annual Repurl, Dinas Pekerdjaan Umum Propinsi Sumatera Utara, 1968.

Railway transport is in much the same state. Over 80 per cent of the locomotives are of prc-1920 vintage and are coal or wood fired. The railway network, totalling 543 km, covers only East Sumatra where it mainly serves the plantation industries. The age of locomotives, track damage. and lack of repair facili- ties have resulted in a drop in freight carried (ton/km) from 137 million in 1960 to 89 million in 1968. The maximum speed of the locomotives is about 40 miles per hour but common judg- ment indicatcs that most of the time trains travel at about 10 to 20 miles per hour. Sometimes the train moves so slowly that a person can jump in and out without difficulty.

Our data also indicate that more than 90 per cent of all public trucks and buses are over five years old (Table 7 ) . The age of the vehicles and the scarcity of spare parts make for high operating costs in road transport, reflected either in high prices charged to consumers or in low prices paid to peasants at the farm. For example, the current rate is Rp35 per ton per km.’?

-The tariff imposed by ORGANDA (Organisation of Land Transport) in May 1968 was (1) Rp52.65 per ton per km in town and (2) Rp33.88 per ton per km belween towcs. The tariff is raised by 43 per cent for class I11 roads, by 81 per cent for class IIIA, and by 150 per cent for class IV.

42

Dow

nloa

ded

by [

McG

ill U

nive

rsity

Lib

rary

] at

11:

55 1

3 N

ovem

ber

2014

The current wholesale price of rice is about Rp3 1,000 per ton in Medan. Therefore the producer in Balige (Tapanuli), a major rice exporting area 250 km from Medan, has to bear transport costs amounting to almost 30 per cent of the total value.

TABLE I Motor Vehicles in North Sumatra according to Years of Usage, January 1968

Years of usage 0-5 5-9 more than 9 Total

Total % Total % Total % Trucks:

Public 206 6 136 4 3,028 90 3,370 Non-oublic 481 25 363 19 1.057 56 1,901

Buses: Public 62 4 245 14 1.385 82 1.692 Nan-public 107 43 37 IS 10s 42 249

Taxis and bemos 21 3 98 12 719 86 838

Arithmetic mean ( % ) 16 13 71

Utara, Medan, 1968.

... ~~~~~

Source: Annual Repurr, Dinas Lalu Lintas Djalan. Propinsi Sumatera

The efficiency of the marketing system, as measured by the speed of the flow of goods, is closely dependcnt upon the quality of transport and communications. Since the government tends to interfere in the market to influence prices in favour of the consumer, most of the impact of the high cost of transport falls on producers, which here means mostly farmers.

REGIONAL FINANCE

The revenue estimates in the 1968 budget of the regional govern- ment amounted to Rp5.3 billion (about $15 million or $2.50 per head of population). This is an increase of more than 100 per cent over 1967. The main sources of revenue are subsidies from the central government (24.8 per cent) and taxes and retributions including ADO and SWIU (47.4 per cent) ,la A surplus of almost Rp273 million from the 1967 budget was carried over to 1968, contributing 6 per cent to 1968 total revenue. Profits of regional government enterprises were expected to yield Rp8

ADO: automatic allocation of province's share of foreign exchange from exports of the region; SWIU: compulsory operating licence fee on commercial enterprises: 'retributions' are fees for services rendered by regional governments.

43

Dow

nloa

ded

by [

McG

ill U

nive

rsity

Lib

rary

] at

11:

55 1

3 N

ovem

ber

2014

million, an insignificant amount compared to the size of the budget (Table 8).

TABLE 8 Revenue and Expenditure in Norih Sumatra Budgets, 1967 and 1968a

1967 1968 Rp % RP %

A. Revenue Surplus from previous year - - 272.9 5 . 1 Subsidies from central govt 808.2 30 .7 1,319-4 24.8 AEQb 1,400.0 5 3 . 2 2,100.0 39.5 Other< 294.3 11.2 1,200.3 22.6 Local taxes 17.5 2 . 9 118.0 2 . 2 ‘Retributions’ and SWIU 5 0 . 5 1 . 9 296.6 5 . 6 Profits from regional enterprises 1.8 0.1 8 . 0 0.2

Total revenue 2,632.3 100.0 5,315.2 100.0

Wages and salaries 404.3 15.4 1,484.2 27 .9 5 1 8 . 2 9 . 7 Goods and materials 439.3 16.7

Total routine expenditure 843.6 32 .0 2,002.4 37 .7 Expenditures for development 1,789.0 6 8 . 0 3,312.8 62 .3

Total expenditure 2,632.6 100.0 5,315.2 100.0

B. Expenditure

~~

..

a This table does not include revenue and expenditure on development projects carried out by ‘Operation Hope’ (Operosi Harapan) which was begun in 1966 on the initiative of the military commander for Sumatra. Revenue for this operation (also called KOPAN) is derived from con- tributions from each of the provinces of Sumatra. amounting to 10 per cent of their ADO receipts. Additional sources have been a loan from the Central Bank and a trading operation with Penans. Over the period 1966-68, a total af about Rp322 million has been expended on develop- ment projects throughout Sumatra, including road building and repair, construction of hospital buildings, etc.

b Further breakdown not available. c Includes revenue from sales of imported consumption goods. Source: Kantor Gubernur Sumatera Utara.

Even though the subsidy from the central government in 1968 is substantially larger than that of 1967, its relative contribution to total revenue is smaller (24.8 per cent in 1968 as compared to 30’1 per cent in 1967). The regional government of North Sumatra is thus less dependent for routine and development funds upon the central government than most other provinces.

The regional government expectcd to receive a tax revenue of over Rp2.5 billion in 1968, an increase of almost Rpl billion

44

[Editor.]

Dow

nloa

ded

by [

McG

ill U

nive

rsity

Lib

rary

] at

11:

55 1

3 N

ovem

ber

2014

over 1967. Over Rp2 billion of this was expected to come from the ADO (Rpl .4 billion in 1967); from the gasoline tax, regional development (Iuran Pembangunan Daerah) and household, vehicle and liquor taxes combined, R p l l S million (Rp77.5 million in 1967); and the rest from retributions and SWIU. Thus the ADO had become much the most important single source of revenue in North Sumatra although its relative importance was expected to be slightly smaller in 1968.

The government uses ADO in two ways. A portion of total ADO receipts (which accrue in the form of foreign exchange) is sold to importers," yiclding the government revenue in rupiahs. The other part is used by the rcgional government to import on its own account capital and consumption goods such as tractors, road-rollers, trucks, steel for buildings, cement, asphalt, zinc, hoes, bicycles, fertiliser, sugar, gunny bags, wheat flour, textiles, and rice. Building materials are imported for the rehabilitation of infrastructure and to increase exports and food production. Consumption goods are imported in order to stabilisc supplies and prices of essential goods. Proceeds from sales of imported consumption goods are used to finance regional development projects.

The total amount of money received by the regional govern- ment from ADO, directly and through the sales of imported goods, was almost Rp1.7 billion in 1967 (65 per cent of the total budget) and was expected to reach over Rp3.3 billion in 1968 (about 62 per cent of the total budget). In terms of foreign exchange, the ADO situation is indicated in Table 9.

TABLE 9 ADO Received and Used, North Sumatra, 1966-68 (gl million)

Year Sur~lus from Receiveda Soent previous year

1966 - 2.9 1 . 1 (beginning August)

1967 1.9 10.5 11.3 1968 1 .0 9.0 9.0

a The amounts in this table do not include the ADO received and spent by the KOPAN (Komando Operasi Harapan), a development project directly supervised by the Chief of the Armed Forces of Sumatra. The amounts for 1968 are es!imates.

Source: Kantor Gubernur Sumatera Utara, Medan.

" D O is sold by tender; the importers submit their bids which include the amounts wanted and the exchange rate they are willing to pay.

45

Dow

nloa

ded

by [

McG

ill U

nive

rsity

Lib

rary

] at

11:

55 1

3 N

ovem

ber

2014

The regional government of North Sumatra owns ten groups of enterprises, among them hotels, a printing press, an ice factory, a water company, cinemas, and several workshops. These enterprises are more important as suppliers of employ- ment than as a source of income for the regional government. They employ 2,414 workers, for whose 7,406 dependants the workers receive some food subsidy.

The 1968 routine expenditure estimates for the province amounted to Rp2 billion. This was more than double 1967 expenditures. Most of this steep rise was accounted for by con- tinuing inflation, rising money wages and salaries (the wage regulation for public employees, PGPS 1968, required an in- crease of 50 per cent in wages and salaries of public servants in 19/58), and rising prices of goods bought by the regional govern- ment, as well as an increase of 2 kg pcr person in the ration of rice given to public servants.15

It is interesting to note the large percentage of the budget devoted to development (over 60 per cent both in 1967 and 1968). Unfortunately, only a very partial breakdown of this expenditure among departments is available (Table 10). Among itemised departments, the largest single recipient was the Depart- ment of Public Works for rehabilitation of roads and bridges in North Sumatra.

TABLE 10 Development Expenditure, North Sumatra, 1968 fpercentase distribution)

Department % General 0.91 Public Works 28.01 Health Education Agriculture 4- Forestry Fisheries Unexpected expenditures Othera

2.26 1.21 1.66 0.53 2.64

61.82

‘Other’ includes expenditures by the Departments of Social Affairs, People’s Industry, Housing, Government Enterprises, and non-depart- mental expenditures.

Source: Kantor Gubernur Sumatera Utara, Medan.

uAbove all, the increase in the price of rice. Since the regional government buys rice to distribute to its employees, the increase in expenditures due to the rise in rice prices must haw been very substantial, quite apart from the increase in the quantity of rice given to each employee.

46

Dow

nloa

ded

by [

McG

ill U

nive

rsity

Lib

rary

] at

11:

55 1

3 N

ovem

ber

2014

BANKING

As an important centre of business, North Sumatra is an attrac- tive place for banks. There are at present sixty-three banks operating in North Sumatra, of which thirty-five are government and twenty-eight are private banks. Of the twenty-eight private banks, ten have their head office in North Sumatra, mostly in Medan; the rest are branches of hanks from the other regions. Several foreign hanks had branches in Medan prior to confron- tation, but all of them closed their offices and none have reopened since then.

According to their type of business the hanks in North Sumatra, government as w-ell as private, may he divided into three categories: gcneral banks, foreign exchange banks, and savings bank. Gencral banks are those which offer general banking services hut may not deal in foreign exchange; there are thirtysix bankc of this type in North Sumatra. The rest are foreign exchange banks except for the one savings hank.

While the government banks give priority in credit to produc- tion of exportable commodities, private hanks grant credit to all kinds of busines. Almost 60 per cent of credit goes to the productive sector. 30 per cent to exporters, and about 10 per cent to domestic trade.'e

The rates of interest charged by government banks range between 3 per cent and 7 per cent per month depending upon the purpose of the loan. Private hanks charge between S and I? per cent a month. But since not everybody has access to the banks. there is an unorganised money market in North Sumatra, especially in Medan. Rates of interest in this market range from 10 to 12 per cent a month.

CONCLUSIONS

North Sumatra has been and still is an important producer of exports in Indonesia. The development of the region has tradi- tionally been dependent mainly upon the export producing sector of the regional economy, chiefly agricultural products. Since the future of such agricultural products is not very bright, efforts should be made to free the development of the region from over- dependence on the production of unprocessed agricultural exports. This may be done by improving and modcrnising the

"These percentages are estimated from the data supplied by Bank Indonesia, Sumatera Utara branch.

47

Dow

nloa

ded

by [

McG

ill U

nive

rsity

Lib

rary

] at

11:

55 1

3 N

ovem

ber

2014

agricultural sector outside the estates and by developing the manufacturing industrie.s producing import substitutes,

There has been a significant increase in the production of rice. This increase, however, has been mainly due to the increase of the planted area. I t is still too early to report the effect of the introduction of PB-5 and PB-8 high-yielding rice seeds in North Sumatra.

Manufacturing industries are still operating below capacity. The situation, however, was slightly better in 1968. These indus- tries, as a group, cannot rightly be called import substituting industries as actually quite a significant part of their raw material is imported. There is still much to be done in secondary industry if its role in the economic development of the region is to be important.

Amudi Pasaribu

Bistok Sitorus

48

Dow

nloa

ded

by [

McG

ill U

nive

rsity

Lib

rary

] at

11:

55 1

3 N

ovem

ber

2014