Govt bows to protests<\/p>\n
The government's decision on Monday to roll back the price
\nhikes for three of the most widely used fuels and to grant
\nindustrial users of electricity a 2.5 percent discount on their
\nmonthly power bills might reduce tension and mass protests but
\nwill certainly damage the credibility of its policy-making
\nability.<\/p>\n
The market will be increasingly nervous about any tough
\nmeasures the government might take, fearing that the government,
\nfaced with mass demonstrations, could easily bow to them, or
\ncancel or defer its policies. Such a policy inconsistency would
\nmake it much more difficult and uncertain when doing business.<\/p>\n
The dilemma, though, is that simply ignoring the nationwide
\ndemonstrations, which entered their third week on Monday, could
\nembolden mass opposition to the President Megawati government.
\nThe mounting protests could threaten political stability with
\ndamage much more devastating than the Rp 19 trillion (US$2.1
\nbillion) in subsidies that would have been saved through the fuel
\nprice increases earlier this month.<\/p>\n
Succumbing to the wave of raucous demonstrations, the Cabinet
\ndecided to reduce the price hike for automotive diesel oil from
\n22 percent earlier this month to 6 percent, for industrial diesel
\noil from 23 percent to 9 percent and for kerosene for big
\nindustrial users from 28.7 percent to 17.65 percent. However, the
\nprice of regular leaded gasoline and industrial fuel and the
\nsubsidized price of kerosene for households and small businesses
\nwere maintained at their pre-January levels and the average 15
\npercent rise in telephone rates was postponed last week.<\/p>\n
The price decrease will, in theory, reduce the inflationary
\nimpact on industrial production and public transportation costs.<\/p>\n
However, there is still a big question as to whether the price
\nhike rollback will be politically acceptable and placate
\nprotesters, who have been demanding total cancellation of the
\nprice rises in utility and telephone calls.<\/p>\n
The government's decision in January 2002, to float the price
\nof domestic fuel on the international market in Singapore, has
\nindeed placed the government between a rock and a hard place due
\nto the high vulnerability of the oil market to political
\nconditions in the Middle East, the world's largest oil producer.<\/p>\n
When the international oil market remained fairly stable
\nwithin a short range of price movements, as it did throughout
\nlast year, monthly price adjustments were politically acceptable
\nand economically painless.<\/p>\n
However, the monthly price adjustments earlier this month were
\nquite painful, as international oil prices have been rising
\nsteeply due to the expectation of a U.S. attack on major oil
\nproducer Iraq and the oil workers' strike in Venezuela.<\/p>\n
Much has been said about the government's mistakes: The bad
\ntiming of the simultaneous price hikes and the social and
\npolitical climate within which such tough measures were
\nannounced, virtually ignoring the public's sense of justice with
\nregard to sharing the burdens inflicted by the economic crisis.<\/p>\n
The government seems to have realized its grave mistakes, as
\ncan be seen from its decisions to reduce the steepness of the
\nprice hikes and defer the rise in telephone rates.<\/p>\n
Hopefully, the two factors behind the oil price spiral that
\nare entirely beyond the government's control will be resolved
\nsoon, otherwise any contingency fund reserves the government
\nstill holds will be insufficient to finance fuel subsidies.<\/p>\n
The government also reiterated last week its resolve to
\nemphasize justice in its dealings with the largest corporate
\ndebtors.<\/p>\n
Even though the government's track record in combating
\ncorruption and dealing with the largest debtors has so far been
\nterribly disappointing, it would still be well advised for its
\ncritics and protesters to give the government the benefit of the
\ndoubt. After all, politics is a game of ironing out compromises.<\/p>\n
Insisting on wholesale cancellation of the price hikes, let
\nalone continuing mass street demonstrations, would only make
\nthings murkier, injecting the factor of uncertainty into the
\npolitical situation. This, in turn, could depress the rupiah
\nexchange rate and consequently further increase fuel prices and
\nforeign debt servicing at the expense of government stimulus
\nspending and social safety net programs. It would be almost
\nimpossible to do business viably under a wildly fluctuating
\nexchange rate.<\/p>\n
A weakening rupiah amid the sharp upward trend in
\ninternational oil prices would certainly deal a double blow to
\nthe economy, driving more people into absolute poverty and
\nleaving the economy in a seemingly hopeless position.<\/p>\n
On the other hand, however, the mass protests should serve as
\na final warning to the government that policy measures that may
\nseem economically sensible and rational are politically
\nunacceptable in the absence of justice and an equitable sharing
\nof burdens.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/govt-bows-to-protests-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
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