Bold or suicidal?
Bold or suicidal?
The government must be commended for taking the drastic and
unpopular measure to increase domestic prices of fuel and power,
by an average of 30 percent and 20 percent respectively starting
next month, at a time like this. There may be some question marks
over the government's decision to increase the rate of value-
added tax from 10 percent to 12.5 percent, but from the economic
efficiency point of view there is no real contention for not
raising the prices of gasoline and power.
Fuel and electricity are two hot political commodities that
can sustain or bring down a regime depending on how it plays the
card. For decades, the Soeharto regime has been parceling out
huge sums of money to subsidize fuel and electricity prices,
fully aware that the chief beneficiaries of these programs were
not the mass rural poor, but the wealthier and politically more
powerful urban minority. Beside raising questions about equality
and fairness, it is also widely acknowledged that these subsidies
have led to gross inefficiency and the wastage of scarce
resources.
Like anything that is inefficient, these subsidies were not
sustainable and sooner or later they had to be terminated.
That the state electricity company PT PLN is on the verge of
bankruptcy is caused, in part, by the fact that it has been
selling power at prices below production costs. But today, it is
not only the PLN which is on the brink of folding. With world oil
prices soaring and the Indonesian rupiah plunging, the government
has simply become flat broke and it has no choice now but to
slash the fuel and power subsidy programs.
Ever since the onslaught of the economic crisis in 1997, the
International Monetary Fund (IMF) has demanded that the
Indonesian government phase out the fuel subsidy to bring
domestic prices closer to world levels.
President Soeharto complied by hiking fuel prices in April
1998 with disastrous consequences for the 32-year regime. Less
than a month later, he was forced out of office through a
combination of bloody unrest and a students revolt. His successor
B.J. Habibie was fortunate not to have been forced to take the
drastic measures of hiking fuel prices during his brief term.
President Abdurrahman Wahid has managed to avoid complying
with the IMF demand until now. But with the government desperate
to raise funds or cut spending to plug its huge budget deficit,
Abdurrahman has had no choice but to slash both the power and
fuel subsidies and hence raise both their prices. The IMF has
also made it clear that it would not disburse fresh loans unless
the Indonesian government came up with a more credible and
supportable budget.
While the President may win some praise for showing the
courage to do the right thing, he may actually be committing
political suicide by introducing these drastic measures when he
is in such a shaky position.
To do the unpopular thing when your popularity is at its
lowest ebb, which is where the President finds himself today, is
almost suicidal. The valuable lesson from all this, for future
leaders, is that you'd better do the unpopular thing when your
popularity is at its highest, and not when it is at its lowest.
Soeharto made the same error with fatal consequences. But in
hindsight, the drastic hikes in domestic fuel prices in April
1998 accelerated the demise of his regime.
Could next month's hikes in fuel and power prices mark the
beginning of the end for Abdurrahman's regime? The coming days or
weeks -- when the full implications of these hikes on people's
lives begin to sink in among members of the public, politicians
and students -- will tell if history will repeat itself. But
whatever transpires, if the experience of 1998 was any
indication, the nation should be prepared for a very rough ride.