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)