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A Familiar Scent of Monopoly

The clove industry epitomizes Indonesia's economic discord. Despite IMF pressure and official government response, the system reeks of nepotism and skimming.


WONOKERTO, Indonesia — From his sprawling stone house atop a hill near Java's southern coast, Parmin, a farmer, can see the neglected green brambles of his clove trees half a mile away.

The groves are untended and wild, the boughs of his spice trees laden with unharvested cloves. Since the president's son took control of the industry eight years ago, Parmin's clove harvest has brought him less than what he paid his workers to pick the buds. Finally, he gave up.

"We just keep them for the flowers," says his wife, shaking her head in bitterness. "We just keep them for the memories."

Here in the lush hills of Wonokerto, several hours southeast of Jakarta, the capital, Parmin is at the very end of the clove chain, a byzantine bureaucracy contrived eight years ago to help farmers get higher prices for their crop. Instead, it has become a system that has siphoned trillions of rupiah away from the clove farmers and cigarette makers and put them into the pockets of President Suharto's son Hutomo Mandala Putra, also known as Tommy, and his cohorts. And it has brought the nation's clove industry to its knees.

"Cloves are one of the most distorted industries in the history of the world," says Faisal Basri, an agricultural economist who has studied the industry for more than 20 years. "The monopoly has been a disaster."

The clove monopoly has become, as well, a symbol of what has brought Indonesia's economy to near collapse: It is a system grounded in nepotism, sanctioned skimming and economic dislocation. This arrangement--where a Suharto family member or friend acts as the overlord of an industry, squeezing out all competition--has been replicated dozens of times throughout Indonesia.

That is why the International Monetary Fund has targeted the clove monopoly and a handful of other cartels run by Suharto cronies and children as part of the reforms the country must make to receive $43 billion in aid.

"The IMF has picked its targets quite carefully," says Bruce Gale of the Political and Economic Risk Consultancy, a Hong Kong-based consulting firm. "If he is willing to sacrifice his children's interests, it shows he is serious."

Indeed, by presidential decree, Suharto eliminated the clove monopoly Feb. 1 and ordered the board that operated it, headed by Tommy, to dissolve by June. But now, after weeks of furious maneuvering, hedging and evasion, the monopoly that seemed for a moment as if it really would die has been reincarnated under a different name. No laws have been passed to enable the reforms; the minister in charge of dismantling the clove monopoly is the man in charge of the timber cartel.

"Nothing has changed," says one industry insider. "And I think nothing will."

Though business as usual may profit Suharto's inner circle, it could cost the country its economic survival. IMF officials, not yet satisfied that Suharto will see his promises through, have already postponed handing over the next $3-billion installment of the rescue package. Backsliding on clove trading, one of Indonesia's largest and most politically symbolic monopolies, would raise doubts about Jakarta's commitment to the whole reform program and could jeopardize the entire $40 billion to come.

A Long History as a Big Business

All this may seem high stakes for a spice. But the lowly clove, the dried bud from a flowering tree, has long had a high profile in international commerce. Used mostly as a seasoning now, the spice also has antiseptic properties and became a much-prized medicament during the plague-ridden Dark Ages in medieval Europe. In 1667, the Dutch acquired the Banda Islands, part of the valuable Spice Islands they controlled in present-day Indonesia and a source of cloves and nutmeg, from the English and surrendered New Amsterdam--now known as New York City.

Today, Indonesia is one of the world's largest producers of cloves, but nearly all of its output is consumed domestically. Elsewhere, the spice is usually used in cooking, to infuse, for example, a Virginia ham with a bit of tang. But in Indonesia, the savory smoke that scents the air wherever people gather signals its main use here: to flavor the tobacco in traditional cigarettes called kretek, named for the distinctive crackling sound the cloves make when they burn.

In 1913, a Chinese immigrant named Liem Seeng Tee created one of the first brand-name kretek, called 2-3-4 or Dji Sam Soe. The name was a bow to Chinese superstition--the numbers add up to 9, Liem's lucky number. That magic worked. A pricey packet of 2-3-4 became a status symbol; Liem's secret blend of tobacco, cloves and other spices turned a common street smoke into a small luxury. The taste became its trademark, and the original recipe is still used today.

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