Fuel price hike impact 'greater than expected'

Fuel price hike impact 'greater than expected'

JAKARTA (JP): The weekend fuel price increase could have a
greater impact on the economy and the public than the government
has anticipated, particularly amid the current social and
political uncertainty, experts warned.

Economist Umar Juoro said that the fuel price increase would
send inflation higher than projected which would in turn further
erode consumer purchasing power.

"It (the fuel price increase) will create a greater burden on
the people and will also cause a slowdown in economic activity,"
Umar said on Sunday.

The government raised fuel prices by an average of 30 percent
on Saturday as part of measures to help limit the widening 2001
state budget deficit to a safer level. The government will also
raise electricity rates by more than 17 percent early next month.

Srijanto Tjokro Sudarmo, an executive at the Indonesian
indigenous businessmen association (HIPPI), also expressed
concern about the impact of the fuel price increase on the public
and the business sector.

"It is regrettable. Despite the already weak purchasing power
of the people, they're still burdened with financing the (state
budget) deficit," he said.

"The fuel price increase will create an intense negative
impact on the development of a people's economy," he added.

The government, however, is confident that the public can cope
with increase.

"The President expects that the people can cope with this. It
(the impact) has been thoroughly studied by a (government) team,"
Adhie Massardi, spokesman of President Abdurrahman Wahid, told
reporters on Saturday.

The government initially planned to raise the fuel price on
Friday, however the move was delayed pending a final social and
political assessment, particularly amid massive labor protests in
major cities across the country.

Several economists warned the government to delay the fuel
price increase, saying time was needed to publicize the new
policy to avoid unrest.

Raising fuel prices has always been a politically sensitive
issue in Indonesia. The downfall of former president Soeharto in
1998 was partly attributed to the fuel price increase in April
that year.

Umar said that the fuel price increase would raise the
inflation rate this year by 1.5 to 2 percentage points higher
than the government's original projection of 9.3 percent.

He added that economic activity would also slow down due to
the multiplier effect of the fuel price increase.

Umar said that the fuel price increase could trigger social
unrest if the government failed to provide sufficient
compensation to the people, particularly the poor.

The government has allocated around Rp 2.2 trillion in
compensation for poor people badly affected by the fuel price
increase.

The government will also provide compensation to operators of
public transportation such as city buses so that the cost of
fares does not increase.

Umar also said that the government must cooperate with the
House of Representatives to deal with grievances from the public.

"The government can't face the protest alone," he said.

The House has given its approval to the government fuel price
increase policy. Considering the current tension between
President Abdurrahman Wahid and the House, however, it is
difficult to imagine legislators defending the government against
protesters of the fuel price increase policy.

The legislators had earlier asked the People's Consultative
Assembly (MPR), the country's supreme legislature, to hold a
special session to call for the President's accountability.

IMF

Meanwhile, the International Monetary Fund (IMF), which is
providing a multibillion dollar bailout program to the country,
cautiously praised the decision.

"We support the government's move on fuel prices but the
compensation package for the poor is a very important element of
it and we still have to study that," IMF senior representative in
Jakarta John Dodsworth told Reuters.

"For long term sustainability, the issue of fuel prices has to
be dealt with, but the timing is very delicate. Only the
government can make that decision. We cannot make that decision,"
Dodsworth added. (rei)