Speaker 1: Talk about activist central banking. We're used to stewards of
Speaker 1: the economy, focusing on inflation and in some instances employment,
Speaker 1: things like that, and sometimes they accused of going too far.
Speaker 1: But tackling the price of chili, that's right. Bank Indonesia
Speaker 1: has played a key role in cornering and breaking up
Speaker 1: the chili mafia cartels. Controlling the price of the spice.
Speaker 1: Busting these racketeers is essential for managing basic economic life
Speaker 1: in Indonesia. Why do we care? Will hold that question
Speaker 1: for just a moment. When Carlos Salna, Bloomberg's economics reporter
Speaker 1: and Jakarta joins us. I'm Daniel Moss, executive editor for
Speaker 1: Global Economics at Bloomberg New York. My co host Scott
Speaker 1: Land and an economics editor in Washington, joins us, and
Speaker 1: here are a few facts about Indonesia people they or
Speaker 1: may not know. It happens to be Southeast Asia's largest economy.
Speaker 1: It's also the world's largest Muslim country. It's even the
Speaker 1: world's fourth most populous country and the world's third largest democracy. Okay,
Speaker 1: so the superlatives just keep stacking up. We know it's important,
Speaker 1: but what about chili? How important is chili Indonesia and
Speaker 1: who is this mafia? Karlos, Good to have you enlightenness. Well,
Speaker 1: hi guys. Well, first of all, let's talk about how
Speaker 1: this came about. I was in Borneo looking into I
Speaker 1: guess some of the unique ways that the Indonesian central
Speaker 1: bait tackles inflation, and everywhere I went I kept on
Speaker 1: hearing about what they were referring to as the Chubbe mafia.
Speaker 1: Now Chube translates in Indonesian into Chili, and what they
Speaker 1: were talking about was, I guess, a shadowy group of
Speaker 1: wholesale ers and middlemen who, using illegal cartel practices and collusion,
Speaker 1: had cornered the chili market so they were able to
Speaker 1: manipulate supply and therefore fixed prices. And now Papa and
Speaker 1: where I was part of Borneo on the east coast
Speaker 1: of Borneo actually and it imports about all its food needs.
Speaker 1: And so to give you an idea of the impact
Speaker 1: of the Chili mafia, the price of red chili shut
Speaker 1: up in Papan in February to about two hundred thousand
Speaker 1: repair or about fifteen dollars a kilogram, which was about
Speaker 1: three times the normal level. This is kind of outside
Speaker 1: the normal remit of the central back to kind of
Speaker 1: go after a specific commodity. And let's be clear, maybe
Speaker 1: some of our listeners, especially in America, we're not talking
Speaker 1: about the kind of chili that you eat in a
Speaker 1: dish with ground beef and maybe some cheese on top.
Speaker 1: This is chili, the space, the actual chili peppers that
Speaker 1: are used throughout dishes, Is that right, Carlos, Yeah, that's correct,
Speaker 1: and they're used to you know, how many dishes do
Speaker 1: people eat with with this space? And it is that
Speaker 1: something that you know is in virtually everything that goes
Speaker 1: into someone's mouth every day there it's as actually, the
Speaker 1: deputy director of the Bank Indonesia office in Papan said
Speaker 1: to me, Indonesians eat chili for breakfast. So you're right,
Speaker 1: it's in everything pretty much. It's on the table tables
Speaker 1: and restaurants everywhere you go. It's in the sumble, it's
Speaker 1: in all the foods, and so it's part of the
Speaker 1: staple diet. Chili for breakfast, do you mean in nassi
Speaker 1: la marck in in the sumble, as I said, which
Speaker 1: is basically the hot source that served with nearly every meal.
Speaker 1: It's a keen ingredient and nearly every recipe and you know,
Speaker 1: look has a major impact on the food vendors who
Speaker 1: operate what's known as the cachilem is or which translates
Speaker 1: into five legs, and it's basically the Indonesian version of
Speaker 1: a New York food truck. It's everywhere. Having spent two
Speaker 1: years in Malaysia, just across the border from Indonesia, I
Speaker 1: can tell you that these chili laden breakfasts are magnificent
Speaker 1: and they definitely get your jew is flowing in the morning,
Speaker 1: far more than just a cup of believe it or not,
Speaker 1: Java would do. So look what else having tackled the
Speaker 1: chili mafia, I mean, what else is the central bank
Speaker 1: going after? Yeah, look, there's many examples of the unique
Speaker 1: ways of banking the injuries. I guess it's fighting inflation.
Speaker 1: That's at the core of this. They have ours. They
Speaker 1: wouldn't see this as an extracurricular activity at all. This
Speaker 1: is not over each This is core to their mandate.
Speaker 1: It's called to their mandate down because um, in a
Speaker 1: country like Indonesia, what for the central bank, in fact,
Speaker 1: fighting inflation is actually their core responsibility. So that look,
Speaker 1: they use interest rates to to as the main weapon
Speaker 1: I guess in doing that, but that that can be
Speaker 1: blunted by other, you know, other factors, and so controlling
Speaker 1: inflation in a country like Indonesia, which has massive legis
Speaker 1: sticks issues, massive infrastructure deficits is essential. You know. Look
Speaker 1: the bank for example, they pay for owls which are
Speaker 1: used in rice field and East Java to stop rats.
Speaker 1: The rats in this case we're eating into crops and
Speaker 1: cutting production, which again was leading to price spikes. They're
Speaker 1: involved in other agricultural projects in addressing the food the
Speaker 1: supply side of food production in cornfield and so martra
Speaker 1: and seaweed farms on the island of Lombok, cattle ranchers
Speaker 1: in Kupang in the east of the country. And backing
Speaker 1: all of this up, of course is the regional or
Speaker 1: the regional control inflation control teams that pretty much leap
Speaker 1: into action when there's there's I guess sudden price spikes
Speaker 1: that are noticed. And in this case it was a
Speaker 1: Chilian chili mafia. So hold on a second. Here the
Speaker 1: central Bank is assisting in the placement of owls to
Speaker 1: keep away the rats that are eating the rice that's
Speaker 1: forcing the price of rice up. Yeah, I guess. I guess.
Speaker 1: I mean, look, so, as we know, central banks around
Speaker 1: the world deal with macroeconomics, and I guess this is
Speaker 1: this has at the granular level, isn't it. This is
Speaker 1: micro economics right down into the granular level, rolling their
Speaker 1: sleeves up, getting involved in in in I guess, educating
Speaker 1: people on how to to grow crops, grow tomatoes, established
Speaker 1: chicken farms. That's that's what this bank does. It's definitely
Speaker 1: something that kinds of extracurricular activities I do not hear
Speaker 1: about in our regular coverage of the Federal Reserve or
Speaker 1: Janet Yellen's press conferences or Mario drag at the European
Speaker 1: Central Bank. But if you listen to some members of Congress,
Speaker 1: they might as well be doing that. You never know, Yeah,
Speaker 1: sometimes the stories can get pretty fanciful. But anyway, Carlos,
Speaker 1: what I'm curious about is, you know, when we talk
Speaker 1: when when you used the term chili mafia, you know,
Speaker 1: I wonder what are the kinds of enforcement methods that
Speaker 1: these mafia has used to control the chili treat Are
Speaker 1: they are are dead bodies ending up at the bottom
Speaker 1: of the Port of Jakarta. Are there are people's legs
Speaker 1: getting broken. What are the kinds of criminal methods that
Speaker 1: are being used that that the Central Bank with its
Speaker 1: uh you know, these kinds of tools are trying to break.
Speaker 1: What the chili mafia and other cartels like it are
Speaker 1: doing is basically just holding back supply to the market.
Speaker 1: That there's been cases where there's been beef mafias that
Speaker 1: have been subject to investigation. In fact, in twenty fifteen
Speaker 1: there was a rate of a number of feed lots
Speaker 1: because they were holding back thousands of thousands of head
Speaker 1: of cattle, which was again driving up prices um you know.
Speaker 1: And the t p i D with the Regional Inflation
Speaker 1: Control teams. They they are a collection of various ministries,
Speaker 1: agricultural ministries, fisheries, the Kappa who which is I guess
Speaker 1: the equivalent the Federal Trade Commission in the US, and
Speaker 1: also the police and and they can roll in on
Speaker 1: these groups and and and and do raids. In this
Speaker 1: particular case, they found what the Chill Chili Marpia was
Speaker 1: doing was selling their their supplies to big business, to
Speaker 1: producers of of source that goes in instant noodle packets.
Speaker 1: And in Indonesia, the law is that all the supplies
Speaker 1: of a particular produce must go to market first, so
Speaker 1: everyone has a fair fair crack at it. In this case,
Speaker 1: they were holding it back and and then you know,
Speaker 1: sending it to a place they papan last. And as
Speaker 1: I said, this is a place that imports much of
Speaker 1: its food, so it was really prone to and at
Speaker 1: the prey of the prone to to something like these
Speaker 1: cartels really taking advantage of them. So it's interesting, but
Speaker 1: it's not quite rising to the level of being like
Speaker 1: the Godfather movie for the chili trade. It's more of
Speaker 1: just these companies are or these businesses are holding back
Speaker 1: the supply. Like you said, it's not as juicy, but
Speaker 1: I get it. I hear what you're saying. It's not.
Speaker 1: But you know what, perhaps they should take it. I
Speaker 1: don't know. Well, hopefully they don't need to take a
Speaker 1: leaf out of the Fisheries ministers book. Su The Fisheries
Speaker 1: Ministers been known to blow up Chinese fishing vessels and
Speaker 1: other fishing vessels from other countries caught illegally fishing in Indonesia.
Speaker 1: So look, who knows what is what kind of steps
Speaker 1: these guys might take to to enforce the law and
Speaker 1: is there a Don Collion type figure at the center
Speaker 1: of the Chile mafia. No. Look, the police told us
Speaker 1: that they gave us some initials of the people that
Speaker 1: have been arrested. And there's been arrests both in Java
Speaker 1: and in East Borneo, in East Kalimantan actually on the
Speaker 1: east coast of Borneo, I think six arrests. There were
Speaker 1: nine companies involved in this car tell operation um, but
Speaker 1: no one specifically has been outed as as the Don
Speaker 1: Corleone as you put it. But look, this is a
Speaker 1: constant battle in Indonesia trying to stay on top of
Speaker 1: of of these prices and and look, just to put
Speaker 1: it into perspective, this is a this is an archipelago
Speaker 1: um that would would stretch from New York to London.
Speaker 1: It's a it's a huge collection of thousands and thousands
Speaker 1: of islands. And the job and the task at hand
Speaker 1: is one that's extremely difficult for the authorities. This is
Speaker 1: this something that President Joco Widoto, that the leader of
Speaker 1: Indonesia has gotten personally involved in. Yeah, we'll look, it
Speaker 1: was Jocko Wedoto that in August ordered the investigation into
Speaker 1: the beef cartels that I mentioned previously. You know, he's
Speaker 1: been vocal in in ordering crackdowns on cartel behavior because
Speaker 1: he recognizes, and he's a man of the people, so
Speaker 1: to speak, he recognizes that these even small changes in
Speaker 1: prices really affect the millions of people that in this country,
Speaker 1: this huge country, still live below the poverty line. So
Speaker 1: Janet yelling you thought your job was tough, Carlos, thanks
Speaker 1: so much for joining us and walking us through your
Speaker 1: reporting on the Chili mafia and what the Central Bank
Speaker 1: is doing about it. No problem, gud is great to
Speaker 1: join you. So, Scott, this really does put a whole
Speaker 1: other dimension on the challenges facing central banks. We're used
Speaker 1: to these seemingly arcane arguments about QUEI and about the
Speaker 1: neutral rate of interest. This is really just a whole
Speaker 1: other paradigm. Well, you think about the you know, our
Speaker 1: coverage of central banks, and we're so focused on their
Speaker 1: you know, the policy meetings, the statements, the speeches that
Speaker 1: they give, and you know, often a criticism is that
Speaker 1: they don't get out enough into the you know, onto
Speaker 1: the ground level to really get their hands dirty and
Speaker 1: what's going on. Uh, you know, and that's probably going
Speaker 1: to be the case, but it is really fascinating to
Speaker 1: see a central bank in a very large economy really
Speaker 1: getting its hands dirty like this. And I was struck
Speaker 1: by the way Kylos described it as a core part
Speaker 1: of their mandate. This is not just some financial crisis
Speaker 1: engineering where they're buying a motor company debt. This UK
Speaker 1: gets to the very very hot of their mandate. You know.
Speaker 1: It shows that if a central bank is really serious
Speaker 1: about its mandate, has to do more than just make
Speaker 1: the right decisions on interest rates. They might need to
Speaker 1: go out and and uh, you know, take a personal
Speaker 1: take a hammer in some way to inflation in the economy. Uh,
Speaker 1: maybe johanet Yellen could learn a lesson. You know, for
Speaker 1: the last few years we've just seen inflation below two.
Speaker 1: Maybe maybe they have to do something in reverse of
Speaker 1: the Chili Mafia to pump up prices in some way.
Speaker 1: That's right. Her challenge is getting it up, not cracking
Speaker 1: down on it. Benchmark will be back next week and
Speaker 1: until then, you can find us on the Bloomberg terminal,
Speaker 1: Bloomberg dot com, or Bloomberg App, as well as on
Speaker 1: Apple Podcasts, pocketcasts, Stitcher, or wherever else you might like
Speaker 1: finding podcasts. While you're there, take a minute to rate
Speaker 1: and review the show so more listeners can find us
Speaker 1: and let us know what you thought of the show.
Speaker 1: You can follow me on Twitter at at scott Landman Dan,
Speaker 1: you are at Moss Underscore Echo, and our guest Carlos
Speaker 1: Salna is at Carlos sa k r l I s
Speaker 1: K s o n A. Benchmark is produced by Sarah
Speaker 1: Patterson and the head of Bloomberg Podcast is Alec McCabe.
Speaker 1: Thanks for listening, See you next time. A foll