Mafia Making a Racket With Chili-Pepper Inflation

for just a moment. When Carlos Salna, Bloomberg's economics reporter and Jakarta joins us. I'm Daniel Moss, executive editor for Global Economics at Bloomberg New York. My co host Scott Land and an economics editor in Washington, joins us, and here are a few facts about Indonesia people they or may not know. It happens to be Southeast Asia's largest economy. It's also the world's largest Muslim country. It's even the

world's fourth most populous country and the world's third largest democracy. Okay, so the superlatives just keep stacking up. We know it's important, but what about chili? How important is chili Indonesia and who is this mafia? Karlos, Good to have you enlightenness. Well, hi guys. Well, first of all, let's talk about how

this came about. I was in Borneo looking into I guess some of the unique ways that the Indonesian central bait tackles inflation, and everywhere I went I kept on hearing about what they were referring to as the Chubbe mafia. Now Chube translates in Indonesian into Chili, and what they were talking about was, I guess, a shadowy group of wholesale ers and middlemen who, using illegal cartel practices and collusion, had cornered the chili market so they were able to

manipulate supply and therefore fixed prices. And now Papa and where I was part of Borneo on the east coast of Borneo actually and it imports about all its food needs. And so to give you an idea of the impact of the Chili mafia, the price of red chili shut up in Papan in February to about two hundred thousand repair or about fifteen dollars a kilogram, which was about three times the normal level. This is kind of outside the normal remit of the central back to kind of

go after a specific commodity. And let's be clear, maybe some of our listeners, especially in America, we're not talking about the kind of chili that you eat in a dish with ground beef and maybe some cheese on top. This is chili, the space, the actual chili peppers that are used throughout dishes, Is that right, Carlos, Yeah, that's correct, and they're used to you know, how many dishes do

people eat with with this space? And it is that something that you know is in virtually everything that goes into someone's mouth every day there it's as actually, the deputy director of the Bank Indonesia office in Papan said to me, Indonesians eat chili for breakfast. So you're right, it's in everything pretty much. It's on the table tables and restaurants everywhere you go. It's in the sumble, it's in all the foods, and so it's part of the

staple diet. Chili for breakfast, do you mean in nassi la marck in in the sumble, as I said, which is basically the hot source that served with nearly every meal. It's a keen ingredient and nearly every recipe and you know, look has a major impact on the food vendors who operate what's known as the cachilem is or which translates into five legs, and it's basically the Indonesian version of

a New York food truck. It's everywhere. Having spent two years in Malaysia, just across the border from Indonesia, I can tell you that these chili laden breakfasts are magnificent and they definitely get your jew is flowing in the morning, far more than just a cup of believe it or not, Java would do. So look what else having tackled the chili mafia, I mean, what else is the central bank going after? Yeah, look, there's many examples of the unique

ways of banking the injuries. I guess it's fighting inflation. That's at the core of this. They have ours. They wouldn't see this as an extracurricular activity at all. This is not over each This is core to their mandate. It's called to their mandate down because um, in a country like Indonesia, what for the central bank, in fact,

fighting inflation is actually their core responsibility. So that look, they use interest rates to to as the main weapon I guess in doing that, but that that can be blunted by other, you know, other factors, and so controlling inflation in a country like Indonesia, which has massive legis sticks issues, massive infrastructure deficits is essential. You know. Look the bank for example, they pay for owls which are used in rice field and East Java to stop rats.

The rats in this case we're eating into crops and cutting production, which again was leading to price spikes. They're involved in other agricultural projects in addressing the food the supply side of food production in cornfield and so martra and seaweed farms on the island of Lombok, cattle ranchers

in Kupang in the east of the country. And backing all of this up, of course is the regional or the regional control inflation control teams that pretty much leap into action when there's there's I guess sudden price spikes that are noticed. And in this case it was a Chilian chili mafia. So hold on a second. Here the central Bank is assisting in the placement of owls to keep away the rats that are eating the rice that's forcing the price of rice up. Yeah, I guess. I guess.

I mean, look, so, as we know, central banks around the world deal with macroeconomics, and I guess this is this has at the granular level, isn't it. This is micro economics right down into the granular level, rolling their sleeves up, getting involved in in in I guess, educating people on how to to grow crops, grow tomatoes, established

chicken farms. That's that's what this bank does. It's definitely something that kinds of extracurricular activities I do not hear about in our regular coverage of the Federal Reserve or Janet Yellen's press conferences or Mario drag at the European Central Bank. But if you listen to some members of Congress, they might as well be doing that. You never know, Yeah,

sometimes the stories can get pretty fanciful. But anyway, Carlos, what I'm curious about is, you know, when we talk when when you used the term chili mafia, you know, I wonder what are the kinds of enforcement methods that these mafia has used to control the chili treat Are they are are dead bodies ending up at the bottom of the Port of Jakarta. Are there are people's legs

getting broken. What are the kinds of criminal methods that are being used that that the Central Bank with its uh you know, these kinds of tools are trying to break. What the chili mafia and other cartels like it are doing is basically just holding back supply to the market. That there's been cases where there's been beef mafias that

have been subject to investigation. In fact, in twenty fifteen there was a rate of a number of feed lots because they were holding back thousands of thousands of head of cattle, which was again driving up prices um you know. And the t p i D with the Regional Inflation

Control teams. They they are a collection of various ministries, agricultural ministries, fisheries, the Kappa who which is I guess the equivalent the Federal Trade Commission in the US, and also the police and and they can roll in on these groups and and and and do raids. In this particular case, they found what the Chill Chili Marpia was doing was selling their their supplies to big business, to producers of of source that goes in instant noodle packets.

And in Indonesia, the law is that all the supplies of a particular produce must go to market first, so everyone has a fair fair crack at it. In this case, they were holding it back and and then you know, sending it to a place they papan last. And as I said, this is a place that imports much of its food, so it was really prone to and at the prey of the prone to to something like these

cartels really taking advantage of them. So it's interesting, but it's not quite rising to the level of being like the Godfather movie for the chili trade. It's more of just these companies are or these businesses are holding back the supply. Like you said, it's not as juicy, but I get it. I hear what you're saying. It's not. But you know what, perhaps they should take it. I don't know. Well, hopefully they don't need to take a

leaf out of the Fisheries ministers book. Su The Fisheries Ministers been known to blow up Chinese fishing vessels and other fishing vessels from other countries caught illegally fishing in Indonesia. So look, who knows what is what kind of steps these guys might take to to enforce the law and is there a Don Collion type figure at the center of the Chile mafia. No. Look, the police told us that they gave us some initials of the people that

have been arrested. And there's been arrests both in Java and in East Borneo, in East Kalimantan actually on the east coast of Borneo, I think six arrests. There were nine companies involved in this car tell operation um, but no one specifically has been outed as as the Don

Corleone as you put it. But look, this is a constant battle in Indonesia trying to stay on top of of of these prices and and look, just to put it into perspective, this is a this is an archipelago um that would would stretch from New York to London. It's a it's a huge collection of thousands and thousands of islands. And the job and the task at hand is one that's extremely difficult for the authorities. This is this something that President Joco Widoto, that the leader of

Indonesia has gotten personally involved in. Yeah, we'll look, it was Jocko Wedoto that in August ordered the investigation into the beef cartels that I mentioned previously. You know, he's been vocal in in ordering crackdowns on cartel behavior because he recognizes, and he's a man of the people, so to speak, he recognizes that these even small changes in prices really affect the millions of people that in this country,

this huge country, still live below the poverty line. So Janet yelling you thought your job was tough, Carlos, thanks so much for joining us and walking us through your reporting on the Chili mafia and what the Central Bank is doing about it. No problem, gud is great to join you. So, Scott, this really does put a whole other dimension on the challenges facing central banks. We're used to these seemingly arcane arguments about QUEI and about the

neutral rate of interest. This is really just a whole other paradigm. Well, you think about the you know, our coverage of central banks, and we're so focused on their you know, the policy meetings, the statements, the speeches that they give, and you know, often a criticism is that they don't get out enough into the you know, onto the ground level to really get their hands dirty and

what's going on. Uh, you know, and that's probably going to be the case, but it is really fascinating to see a central bank in a very large economy really getting its hands dirty like this. And I was struck by the way Kylos described it as a core part of their mandate. This is not just some financial crisis engineering where they're buying a motor company debt. This UK gets to the very very hot of their mandate. You know.

It shows that if a central bank is really serious about its mandate, has to do more than just make the right decisions on interest rates. They might need to go out and and uh, you know, take a personal take a hammer in some way to inflation in the economy. Uh, maybe johanet Yellen could learn a lesson. You know, for the last few years we've just seen inflation below two. Maybe maybe they have to do something in reverse of the Chili Mafia to pump up prices in some way.

That's right. Her challenge is getting it up, not cracking down on it. Benchmark will be back next week and until then, you can find us on the Bloomberg terminal, Bloomberg dot com, or Bloomberg App, as well as on Apple Podcasts, pocketcasts, Stitcher, or wherever else you might like finding podcasts. While you're there, take a minute to rate and review the show so more listeners can find us and let us know what you thought of the show.

You can follow me on Twitter at at scott Landman Dan, you are at Moss Underscore Echo, and our guest Carlos Salna is at Carlos sa k r l I s K s o n A. Benchmark is produced by Sarah Patterson and the head of Bloomberg Podcast is Alec McCabe. Thanks for listening, See you next time. A foll