Experts warn of unrest over fuel price hike

JAKARTA (JP): The plan to increase fuel prices by an average of 30 percent in the middle of this month could create social unrest because the government would not have enough time to properly inform the public about the new policy, experts warned.

University of Gadjah Mada economist Sri Adiningsih said on the weekend that sufficient preparation was needed to ensure the rise was well-accepted by the public.

"I'm a little bit worried about the timing. There's only one week left before the government increases the fuel prices. Will there be enough time to disseminate the policy and design an appropriate compensatory measure," she said.

The House of Representatives approved on Friday the government's proposal to raise fuel prices by an average of 30 percent in the middle of June.

The price increase includes raising the price of gasoline to Rp 1,450 per liter (from the current price of Rp 1,150 per liter), automotive diesel to Rp 900 per liter (from Rp 600) and kerosene to Rp 400 (from Rp 350).

The price of industrial diesel and bunker fuel will be maintained at 50 percent of international prices.

The government has said that the fuel price increase was necessary to reduce fuel subsidy to help maintain the 2001 state budget deficit at a safe level of about 3.8 percent of gross domestic product (GDP).

Deputy head of the House state budget task force Abdullah Zainie also advised the government to prepare proper compensatory measures, particularly for the lower income group.

"This is important to avoid social unrest," he told the media on the sidelines of a debate between the task force and the finance ministry over the fuel price increase proposal.

The government plans to provide about Rp 1.2 trillion in compensation for the lower income group.

But the government has yet to complete the details of its compensatory measure. The National Development Planning Agency (Bappenas) has been assigned to design the compensatory measure.

Abdullah said the compensatory measure could be in the form of a social safety net such as healthcare and education programs.

But he warned the government of possible abuse in the implementation of a social safety net program.

The World Bank recently announced the cancellation of its aid to the country's social safety net program due to massive abuse. The program was designed to help the poor survive the country's economic crisis.

Raising fuel prices is a politically sensitive step in the country. The downfall of former authoritarian ruler Soeharto in May 1998 was partly triggered by a fuel price increase in April.

The current social and political conditions are also not conducive for a fuel price increase as President Abdurrahman Wahid is facing pressure from legislators to step down. Many people, particularly the poor, are suffering from the country's economic crisis that began in the middle of 1997.

"But the fuel price increase is unavoidable," Sri said, pointing out that the sharp plunge in the rupiah and rising domestic interest rate could widen the deficit to a dangerous level of 6 percent of GDP.

The fuel price increase is part of the government's measure to contain the deficit. The government also plans to raise value- added tax (VAT) to 12.5 percent from 10 percent, but this has yet to be approved by the House.

Sri said compensation was important for the poor because the fuel price increase would lessen their purchasing power.

But she welcomed the government's decision to raise the price of kerosene only by Rp 50 per liter.

Kerosene is considered one of the basic commodities of the lower income group. (rei)