Asia Times: Oil price hike deferment pushes Wahid into a corner


	April 11, 2000	atimes.com

Southeast Asia

Oil price hike deferment pushes Wahid into a corner
By Kafil Yamin

JAKARTA - President Abdurrahman Wahid bowed to popular pressure when he deferred a planned fuel price hike last week, saying conditions were not conducive to such an increase.

But given the economic difficulties and the mood of Indonesians these days, there will never be a right time for any price increase. And by postponing the inevitable, problems are bound to multiply, not go away, observers say.

The planned increase was part of government efforts to gradually reduce fuel subsidies that have for decades kept local oil prices below international standards. Analysts say domestic fuel prices are among the cheapest in the world due to the subsidies. But amid threats of mass unrest, the Indonesian government cancelled plans to raise fuel prices by 12 percent on March 31. The move averted what could have been a string of increases in prices of commodities, transport fares, electricity rates and other services. More importantly, it avoided the wrath of the Indonesian public.

But by postponing the unpopular, the government only prolonged its agony. It now has to continue subsidizing fuel prices, in effect leaving little resources for other priority spending and keeping a huge budget deficit.

By going ahead with the fuel price increase, the government could have cut fuel subsidies to 22.4 trillion rupiah ($2.9 billion) from 27.5 trillion rupiah ($3.5 billion) during the last fiscal year which ended on March 31.

Cutting subsidies is one of the key measures Jakarta has promised the International Monetary Fund (IMF) it would do to keep its finances in better shape. So delaying it added another layer of frustration for the IMF, which had already delayed release of a $400 million loan because of Jakarta's alleged slow pace of reforms.

The IMF has said that if Indonesia succeeds in reducing the burden caused by the subsidy on government finances, it will be able to recover sooner from the economic crisis which crippled Asian economies in 1997. IMF representative in Indonesia, John Dodsworth, disclosed that several top-priority programs, including corporate restructuring, recapitalization of state banks and the reform of the tax system, have been poorly implemented.

Wahid was said to have lashed out at the cabinet for the slow pace of reforms but days later, he found himself ordering a postponement of the oil price increase.

Indeed, the president, in power for only five months, is still walking a tightrope, balancing demands of a public that has demonstrated its capacity for violence and reform measures set by an impatient creditor. Wahid knows only too well that it was a fuel price hike that preceded the violence in 1998 that led to Suharto's downfall.

Even the reform-minded cabinet of Abdurrahman Wahid is in a dilemma. Seeing that past subsidies have mostly gone to the wrong targets, officials agreed to increase fuel prices. But at the same time they wanted to devise a way to help the poor cope with the impact of the increase by proposing some other form of direct subsidy. ''It is evident that the government has not a clear idea about how it would give subsidies to the right targets,'' said Irwan Prayitno, chairman of the House Commission that oversees mining and energy.

He and other legislators called for a postponement of the increase, saying the government was also not prepared to deal with the impact of the fuel price hike. Likewise, there was still no mechanism in place to prevent leakage in the proposed distribution of fuel subsidies to poor families and public transportation owners.

But while the House of Representatives called only for a deferment, the public is demanding much, much more. ''We don't want a postponement. We don't want higher prices of fuel today, tomorrow or any time in the future,'' said a student activist here.

''No mendicancy! No begging,'' wrote the popular Kompas daily in its editorial in support of the price hike. ''If no begging (to foreign donors) is our common stance, then we have to reduce subsidies,'' it said.

A government TV ad explaining the importance of reducing fuel subsidies failed to dampen the public outrage. Nothing will change the minds of those who oppose the plan. ''A hike in fuel prices betrays the people's will,'' said Dita Indah Sari, coordinator of the National Front for Indonesian Labor Struggle. The group has threatened to fill the streets of the capital with tens of thousands of its members if the government pushed ahead with the fuel price hike.

City Forum, a radical student organization, said it would mobilize 3,000 to 5,000 people to join street protests in the event of a fuel price increase. ''We will be there and convince the government that it cannot go ahead with its plan without our approval,'' said Mixil, a student leader.

Announcing the policy change last Friday, Wahid said the government decided to postpone the fuel price hike because circumstances in the country were not conducive. ''We will increase the prices when we are ready.'' When that day will come is difficult to predict.

(Inter Press Service)

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©1999 Asia Times Online Co., Ltd.