Price hikes to help the poor, but the message is lost<\/p>\n
Simon Howland and Endy M. Bayuni, The Jakarta Post, Jakarta<\/p>\n
The government insists that the massive hikes in fuel,
\ntelephone and electricity prices at the start of the year are
\naimed at helping the poor, and not to make their lives more
\nmiserable as critics claim.<\/p>\n
While the poor will probably feel the initial pinch as the
\neffects of the hikes work their way through the economy, the
\ngovernment argues that the increases will eventually lead to
\nallowing the masses greater access to basic necessities, such as
\npower and telephone.<\/p>\n
The economic arguments may sound compelling, but they have
\nbeen drowned out by the overwhelming public outcry and mounting
\nprotests since the increases were announced on the second day of
\nthe year.<\/p>\n
Either that, or as some critics would have it, the government
\nhas simply failed in its public relations exercise and in
\ncommunicating effectively with the public about its policies.<\/p>\n
Few economists would argue against the economic rationale or
\ntheory behind the increases: They should lead to greater economic
\nefficiency in the way that these basic utilities are managed and
\nthus allow more money for their development.<\/p>\n
The economists also agree that the benefits of low utility
\nprices have been enjoyed mostly by the wealthy, and not the poor.<\/p>\n
Removing or cutting back on the amount of subsidies would hurt
\nthe middle class, particularly those in the low to middle-income
\ngroup, more than the poorest of the poor, who are probably more
\nresilient to changes in the prices of these utilities.<\/p>\n
"To say raising electricity and telephone costs hurts the poor
\nis completely absurd," said Mahendra Siregar, an aide to
\nCoordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti.<\/p>\n
"Considering only about half of the population has access to
\nelectricity, and a minuscule portion have their own (fixed line)
\ntelephone, then how can you say that poor people will be
\naffected?" he asked.<\/p>\n
Approximately 55 percent of the population can afford
\nelectricity, and of that percentage, households that use less
\nthan 450 watts will still have their rates subsidized by the
\ngovernment.<\/p>\n
According to state electricity company PT PLN, the 6 percent
\nquarterly increases will enable them to recover from financial
\ntroubles and provide more widespread services.<\/p>\n
PLN claims that it has been unable to make any new investments
\nsince 1998 and the increase in revenue will allow it to resume
\ninfrastructure programs aimed at eventually providing all
\nIndonesians with access to electricity.<\/p>\n
On the topic of fixed line telephones, the impact on the poor
\nbecomes all but irrelevant as only about 5 percent of the
\npopulation even own them. Therefore the hikes initiated by the
\nstate-owned PT Telekomunikasi Indonesia (Telkom) are only a
\nconcern for the top socioeconomic groups.<\/p>\n
That said, Telkom's economic stability and monopoly over fixed
\nline telecommunications means there is no economic incentive for
\nit to extend access to the low-income bracket. Instead, it may
\npursue infrastructure improvement because of a sense of social
\nresponsibility.<\/p>\n
The hike to have the biggest impact on the poor is undoubtedly
\nthe fuel increase, but this has to be approached objectively.<\/p>\n
The poor will pay more for public transportation and cooking
\nfuel, but the real impact will fall on the shoulders of motor
\nvehicle owners in the middle class who spend up to 10 percent of
\ntheir income on fuel.<\/p>\n
With the fuel subsidy, the more cars you owned and the more
\nfuel you consumed, the more benefits you received. With the
\ncancellation of the subsidy, the potential is there for the
\nbenefits to be shared far more evenly.<\/p>\n
The government is determined that domestic fuel prices will be
\non par with world levels by the end of the year.<\/p>\n
Wary of the fact that the initial impact of the price
\nincreases will still hurt the poor, the government has initiated
\na program to cushion the blow.<\/p>\n
President Megawati Soekarnoputri has allocated some Rp 4.43
\ntrillion ($497 million) of funds in subsidies that will be
\ndirected specifically at the most needy.<\/p>\n
This is in contrast to the fuel subsidy, the benefit of which
\ngoes to those who need the least assistance.<\/p>\n
Coordinating Minister for Peoples' Welfare Jusuf Kalla gave
\nout on Thursday the details of how that money would be
\napportioned. They include subsidies for rice, health care and
\nschooling and the creation of labor intensive projects in other
\nsectors.<\/p>\n
"The government is lowering the price of basic necessities and
\nservices to alleviate the impact on the majority of the
\npopulation," Mahendra Siregar said. "In poor areas, for example,
\nthe price of rice will be cut from Rp 2,500 to Rp 1,000 per
\nkilogram."<\/p>\n
State Minister of Communications and Information Syamsul
\nMu'arif announced on Thursday the immediate distribution of the
\nsubsidized rice, although no specific amount was specified.<\/p>\n
Other targets for government benefits include a continuance of
\nfamily planning measures, such as the distribution of condoms.<\/p>\n
There are fears that problems in administering the aid, such
\nas rampant corruption, will prevent the funds from reaching their
\nintended targets.<\/p>\n
As unpopular as the price hikes may seem, their ultimate goal
\nis to improve budget efficiency and promote equity.<\/p>\n
The swelling government budget deficit caused by maintaining
\nthese unfair subsidies can be channeled into other areas and
\nbenefit more people than just the wealthy.<\/p>\n
"All the (government) money that went into fuel, telephone and
\nelectricity went into a black hole," Mahendra said. "By re-
\ndirecting those funds into public structures, we can leave
\nsomething behind for future generations."<\/p>",
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