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.