This chapter looks in detail at the determination of official freight rates.' The first part reviews the evolution of the official tariff since Independence. The next two parts examine the commodity structure of the tariff and the relationship between the official tariff and actual freight rates. The final part considers the policy implications.

EVOLUTION OF THE OFFICIAL INTERISLAND FREIGHT TARIFF

Interisland freight rates were regulated originally by the Netherlands Indies Government as a check upon the monopoly of the KPM. Proposals for rate increases had to be submitted to the Department of Economic Affairs for approval and, since increases meant greater government expenditure for shipment of the large tonnage of official cargoes, this was no mere formality. Submissions were carefully scrutinized and negotiations were tough.

After Independence the concern to regulate the now “foreign” KPM was very much greater. Yet in some ways the KPM found negotiations easier with the Indonesian Government. The new officials lacked their predecessors' economic and commercial expertise. Less capable of attacking submissions on the basis of their cost and revenue estimates, they relied instead on social and political arguments: the KPM had made excellent profits before Independence, it had accumulated good reserves and its ships were in fine condition, therefore the company ought to carry essential consumption items at low rates without regard to profits. In effect, the KPM won the battles, because the government accepted its cost and revenue estimates, but not the war, because the government refused to admit that these were the decisive considerations. Unable to fight on moral terrain, the company had to stand firm on the position that as a private firm it could not carry on business in Indonesia without an acceptable return on shareholders' funds. As long as the Indonesian Government remained unwilling to accept the dislocation which would be caused by the departure of the KPM, this was a powerful argument.