Prices hiked, time for damage control: Economists<\/p>\n
The simultaneous increases in fuel, electricity and telephone
\ncharges has triggered popular anger among the middle classes.
\nMany have condemned the government's decision, while many at the
\nsame time claim to understand the reasons behind the decision,
\ndespite the government's poor approach in explaining the plan in
\nadvance. Economist M. Chatib Basri shared his views on the issue
\nwith The Jakarta Post's Soeryo Winoto.<\/p>\n
Question: From the economic point of view, the government had no
\nother choice but to increase fuel, telephone and electricity
\ncharges. Do you think it was wise for the government to announce
\nthe increases simultaneously at such a difficult time?<\/p>\n
Answer: We are talking about choices. Theoretically, the
\nsimultaneous announcements should have a small impact on
\ninflation. But, let's say, if fuel prices rise today, the price
\nof chili will also rise -- regardless of the fact that there is
\nno direct link between them. And after the government announces
\nan increase in electricity charges, the sellers will also hike
\nchili prices. Vendors tend to seek ways to hike the prices of
\ntheir merchandise.<\/p>\n
Simultaneous increases are better. However, public policies
\nalways have psychological effects among the people, a point the
\ngovernment seems to have ignored.<\/p>\n
The increases in fuel prices and electricity charges were
\nunavoidable. The government's subsidy for fuel totaled Rp 16
\ntrillion (US$1.7 billion), and electricity came in at Rp 3
\ntrillion.<\/p>\n
You mean that the increase in telephone charges could be
\ndelayed, judging from the fact that telephones are not a basic
\nnecessity for low-income bracket people?<\/p>\n
Yes, exactly, but not the fuel and electricity prices.<\/p>\n
Do you think that there may be a possibility for the
\ngovernment to find a right time? When and how?<\/p>\n
The government should have picked the right time for that. But
\nthings have happened. The damage is done. There's no need to look
\nback. More important now is how to minimize the damage.<\/p>\n
Let's say the government has made a blunder. Do you see that
\nthe government still has the opportunity to correct the mistake?
\nAnd if so, how?<\/p>\n
There are some things that we could do within the range. The
\ngovernment should fine-tune tax instruments for short-term
\nresponse. Value added tax and luxury tax (PPN-BM) could be
\nlowered or abolished to improve the business climate. Can you
\nimagine that bottled tea and Coca Cola are luxury goods in
\nIndonesia (and thus taxable)?<\/p>\n
What is saddening to us is that the people are criticizing,
\nprotesting against the wrong things. The crucial point is not the
\nincrease in fuel prices.<\/p>\n
Frankly speaking, fuel prices in Indonesia are lower than
\nthose in China, but China's products are cheaper. How come? There
\nmust be something wrong here. Value added tax and luxury tax, and
\na high-cost economy have obviously played significant roles in
\nmaking our products more expensive than those of China, for
\nexample.<\/p>\n
Given the fact that poor people will be affected by these
\npolicies, I would suggest that a special program be developed to
\nhelp them. The government can make cheap rice available for the
\npoor. The rice must be of lower quality and worth about Rp 1,000
\nper kilogram. Good quality rice may be swindled and corrupted by
\nthose in charge of distribution. Cheap and lower quality rice
\ndoes not interest the market. This is one of the ways to control
\nrice distribution through the compensation program.<\/p>\n
And I agree with Indah Sukmaningsih's proposal that those
\nreporting irregularities (in the compensation program) should be
\nrewarded (Indah Sukmaningsih is the chairperson of the Indonesian
\nConsumer Protection Foundation -- YLKI).<\/p>\n
Through the compensation program, the government will keep
\npoor families' total (food) consumption constant as they will
\nstill be able to purchase the (cheap) rice.<\/p>\n
The long-term plan is eradicating illegal levies (imposed on
\nbusinesspeople daily).<\/p>\n
What you've said sounds rational and acceptable. Do you think
\ngovernment officials or the decision makers are aware of the
\nrational steps that should be taken to control the damage?<\/p>\n
Don't ask me that question. I just have no idea why they've
\nyet to take any prompt and appropriate action (to deal with the
\n'damage' caused by the utility price hikes). Rationally, they
\ncan, but I don't know why they haven't acted yet. The damage is
\nalready done. Why don't they just take action to minimize it.<\/p>\n
The government said that the ball was in the hands of the
\nHouse of Representatives, while the House said the ball was in
\nthe hands of the government. Such arguments are a blatant mockery
\nof our common sense. Just cut or withdraw the PPN-BM. Just do it.
\nThe longer the absence of necessary government action, the more
\ndangerous the situation will be.<\/p>\n
So everybody is acting like Pilate?<\/p>\n
I'm afraid so.<\/p>\n
How do you see the role of the Office of the Coordinating
\nMinister for the Economy in such a situation. Has the minister's
\noffice managed to coordinate the other relevant ministries and
\ninstitutions to limit the damage of the utility price hikes?
\nThings seem to be out of hand.<\/p>\n
This is what the government has failed to do: anticipate. I
\nsee that the government's economic team has failed to anticipate
\nthe possible effects of the utility price hikes. If we talk about
\nsocialization of the plan (to increase the prices), then we can
\nsimply say that the socialization has been a total failure.<\/p>\n
However, the public's reaction (against the price hikes) has
\nbeen excessive, I'm afraid. Because the increases in fuel prices
\n(this year) are lower than that in 2002. Last year, the price of
\nkerosene (for household use) increased by 50 percent, while there
\nwas only a 16 percent hike this year; premium gasoline went up
\n20.7 percent last year, while it was only 3.4 percent this year;
\ndiesel went up by 25 percent this year and by 64 percent last
\nyear, and kerosene for industry increased by 67 percent last year
\nand only 39 percent this year. So, I don't think it's the right
\ntime for the people to take to the streets to express their anger
\nover the increases in fuel prices. They should have been more
\nangry last year.<\/p>\n
The government should have asked everybody to view the problem
\nin a cool manner and promise that such a blunder will never
\nhappen again in the future. The government and the people must
\nsit down and talk about the situation in a very cool manner.<\/p>\n
What's the worst-case scenario? Will these unpopular
\ngovernment policies affect the targeted national growth?<\/p>\n
(From the economic point of view) I don't see the government
\nwill turn back the clock. There will not be any serious
\nescalation and the real impact won't affect national growth,
\nwhich I expect to be still around 3.8 percent. Inflation could be
\nslightly lower as the sources of consumption growth will likely
\nbe stable. People will prefer purchasing goods that can be kept
\nfor a long time to spending money on other purposes. It would be
\nwiser for you to invest your money in buying a Kijang van, which
\npromises a resale value, than depositing the money at the bank
\nwith only 12 percent interest per year.<\/p>",
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