Mon, 07 Mar 2005

Fuel price increase: No escape from reality

Endy M. Bayuni, The Jakarta Post, Jakarta

Indonesia finally got in step with the rest of the world, which has been trying to deal with the reality of extremely high oil prices. The hike in domestic fuel prices last week, averaging 29 percent, had to happen sooner or later given that world prices have more than doubled in the 14 months since they were raised last.

Most people in the world, including some countries much poorer than Indonesia, have already had to make the painful adjustments to this new reality. In India, for example where per capita income is lower, motorists pay close to the equivalent of US$1 for a liter of gasoline, including an excise tax.

The adjustment for Indonesians was always going to be that much harder, because the government decided to pass on the increase to the gas stations in one lump, whereas most other countries reviewed their domestic fuel prices incrementally as world oil prices jumped from day to day, week to week, and month to month over the past year.

World oil prices were hovering at around $24 a barrel at the start of 2004, but ended the year around $50. This week, when Indonesia decided to increase the domestic fuel prices after managing to hold on to them for 14 months, world oil prices reached $53.

The Rp 2,400 (about 26 US cents) a liter people now pay at gas stations for premium (regular) gasoline only takes us to the "$35 a barrel" reality, meaning that there is still a huge subsidy component in each liter we burn.

Essentially, we are only half the way to the real market price. But even that is bad enough for most people.

Indonesians have ex-president Megawati Soekarnoputri to thank for (or curse), for shielding the people from the vagaries of the volatile world oil markets. Facing an election later in the year, Megawati decided early on in 2004 that it was too risky, for her own political survival, to increase domestic fuel prices. So she postponed the tough decision, but lost the election anyway.

What an ungrateful lot Indonesians turned out to be when they did not return her to office. Instead, the voters opted for one of her lieutenants, former chief security minister Gen. (ret.) Susilo Bambang Yudhoyono. And so it was left to him to do the unpopular thing, and still, he took five months to work up the courage to do it.

Nobody said it would be easy to live with high world oil prices. I addition to the immediate impact on transportation costs, the hikes will be felt by the rest of the economy, as producers and distributors pass on the increase to the consumer.

So the nation must brace for even more bad news ahead.

But if the experience of the rest of the world, and of countries poorer than Indonesia, in coping with higher oil prices is any indication, the increase in domestic fuel prices last week does not mean the end of the world either -- as many who oppose the increase would have us believe.

Clearly, everyone, without exception, will be affected by the increase. Some will feel it more than others. The poor, particularly, are most vulnerable to general increases in prices, though not necessarily to higher fuel prices.

Even if the government succeeds in shielding the poorest 17 percent of Indonesians by providing them with other subsidies, that will still leave the bulk of the population with higher prices for many basic items.

These are the people, (between the 17 percent poorest and 30 percent wealthiest) who are not poor enough to qualify for government assistance, but not wealthy enough to be able to easily afford all the increases in prices without making huge sacrifices. These are usually urban people with low, fixed incomes working in factories, construction sites or in offices -- including low-level civil servants.

And they are likely to be hardest hit from the direct impact of higher fuel prices because they have to commute to work, and budget for food and other goods, which will surely see a price hike.

Sacrifices are therefore inevitable.

Coordinating Minister for the Economy Aburizal Bakrie, when announcing the increase on Monday night, used the word "sacrifice" twice. Sadly, neither he nor any of the government officials followed up on this gesture or bothered to explain what was meant exactly.

Whenever leaders appeal for sacrifices, the most effective way for people to actually accept it, is to give details about what sacrifices they themselves are making. One appeals by setting an example, not by telling others to sacrifice, then continuing to live an extravagant lifestyle. Soeharto, for all his faults, at least told his officials to tighten their belts and set an example.

What we see today is the contrary, with officials and elected leaders awarding themselves hefty salary hikes at a time when most of the people that voted for them are asked to make sacrifices.

Still, anyone seriously opposing the government's decision to increase fuel prices is simply denying the reality that we no longer live in the era of $24-a-barrel oil.

He or she is also denying the reality that Indonesia is no longer loaded with oil the way we used to be back in the 1970s and 1980s. Those days are over.

If anything, the chief lesson of the 1970s and 1980s was that we squandered the massive amount of petrodollars through corruption and building unnecessary, white-elephant projects, and left the nation largely impoverished and almost bankrupt by the end of the corrupt Soeharto regime.

Today, we have to buy many of our oil needs from outside, and we are no longer awash with petrodollars. And yet corruption is still very much with us, just as it was during the heyday of the oil economy.

And the fact that corruption is still out of control is probably the one reality that is much harder to digest for most people here, whether you support or oppose the fuel price increases.

The writer is the chief editor of The Jakarta Post.