Economists, legislators decry rate increases

Economists, legislators decry rate increases

JAKARTA (JP): Economists and legislators denounced yesterday
the government's decision to jack up fuel and electricity prices,
saying the steep hikes were prompted by the government's failure
to manage the energy sector efficiently.

The Econit Advisory Group said fuel and electricity subsidies
could have been maintained if both the state-owned oil company
Pertamina and the state-owned electricity company (PLN) managed
their sectors soundly.

"The current argument used by the government is that the fuel
subsidy should rise every time the rupiah falls. That statement
is misleading because Indonesia is a net exporter of oil and gas
and it should have benefited from the rupiah depreciation,"
Econit said in a statement.

The revenues from the export of oil products could cover the
cost of producing fuel, which contains imported components, the
group said.

The same applied to electricity tariffs, which should not have
risen if PLN were not burdened by dollar-denominated loans and
production costs.

Contracts between PLN and private companies which supply its
power and components were made in dollars, while PLN charges its
customers in rupiah.

Legislator Eki Sjachruddin said the government should have
improved the efficiency of PLN and Pertamina before eliminating
the subsidies.

Economist Anwar Nasution said the inefficiency in the power
sector resulted from the fact that most independent power
companies entered the business only due to their close
relationship with powerful figures rather than capability.

Others expressed concern that the sharp increases would add to
the burdens of the people and had social and political
implications.

"In a situation like now, this will surely create a chain
reaction in the economy," economist Didiek Rachbini told The
Jakarta Post.

Mari Pangestu of the Centre for Strategic and International
Studies estimated that the rise in fuel prices would contribute
to about 3 percent of this year's inflation, while the increase
in electricity tariffs would contribute 2.4 percent.

"With the increase in public transportation fees, they will
cumulatively contribute 6 percent to 12 percent of the inflation
this year," Mari told the Post.

Mari said the hikes would also affect many businesses which
were not export oriented, because of increased production costs.

"They may even suffer losses because they will not be able to
increase their prices to cover increased production costs due to
depleting purchasing power," she said.

The Indonesian Consumers Foundation said the price hike could
push inflation up to 100 percent this year.

Legislator H.M. Buang from the United Development Party
faction said he was "worried that the decision to raise fuel and
power tariffs could add to the restlessness of the people".

A series of protests, mostly conducted by students, have
occurred almost daily over the last two months, all calling for
sweeping economic and political reforms.

Budi Hardjono of the Indonesian Democratic Party said his
faction in the House of Representatives had reminded the
government of the political and social risks of raising the
prices before the decision was made.

"The price hikes can add to the loss of confidence of the
people toward the government," he said.

In Yogyakarta, an economist from Gadjah Mada University,
Anggito Abimanyu, said people had the right to be angry with the
government for making a decision without their consent.

Anggito said the government's credibility was at stake unless
it gave clear and transparent reasons for the price hikes.

Sri Mulyani said the government could restore its public image
by improving its noneconomic policies.

"The government cannot make popular economic policies anymore
to regain public support in this situation, so it has to rely on
political policies which guarantee a good and open system," she
said.

The Indonesia Committee for World Muslim Solidarity urged the
government to review its decision and consult with the House
before it made any more decisions.

Some economists agreed, however, that the government had
little choice but to raise the prices.

"Whether it's good timing or not to raise the prices now is
irrelevant for the government because of the heavy pressure on
them," Sri Mulyani said.

"The reality is that we have to remove all subsidies and
eliminate all high costs in dollars," she said, referring to the
reform program backed by the International Monetary Fund (IMF)
requiring the removal of subsidies in exchange for its US$43
billion bailout package.

Didiek said Indonesia had been severely "choked" by the IMF
and that it could do nothing else to maintain the subsidy.

"We could strengthen our agroindustry and use it for the fuel
subsidy, but the IMF would not like it. They would not care if
people are suffering here," Didiek said. (23/44/das)