Fuel price hike policy causes confusion
Moch. N. Kurniawan, The Jakarta Post, Jakarta
The government's new fuel price hike policy has created confusion among economists and legislators as fear of soaring prices of basic goods starts to haunt the public.
Centre for Strategic and International Studies (CSIS) economist Pande Radja Silalahi feared the fuel price increase would create new uncertainty as it could trigger hoarding and high inflation.
"It's worse than I thought. The previous (fuel hike) policy was simpler, clearer and better," he told The Jakarta Post.
Umar Juoro of the Center for Indonesian Development and Economic Studies (CIDES) concurred, saying that since the domestic fuel price would be set based on the international price starting March, with the expectation of rising international oil prices ahead, people would be tempted to start hoarding fuel products and goods.
He predicted inflation to be between 12 percent and 13 percent this year, compared to the government target of 9 percent.
"It is difficult for inflation to stay as a single digit this year. Be realistic, we are now facing not only a fuel price hike, but also an increase in electricity and telephone rates," Umar said.
The economy last year was also hit by double-digit inflation of 12.5 percent, forcing Bank Indonesia to keep interest rates high, which created difficulties for cash-strapped businesses in obtaining badly needed bank loans and in restructuring their debts.
The government raised fuel prices by an average of 22 percent, effective Thursday, and pegged most fuel products except kerosene for households and small industry to prices in neighboring Singapore.
Among the increases, the price of gasoline was increased to Rp 1,550 per liter from Rp 1,450 and kerosene for households and small industries to Rp 600 from Rp 400.
The new prices will only apply until the end of February, and starting March they will be set based monthly on the price of the Mid Oil Platts Singapore (MOPS), although the government has also set a floor price and ceiling price to anticipate sharp fluctuation in the international price. The floor price and ceiling price for premium gasoline, for instance, is set at Rp 1,450 and Rp 1,750.
The domestic fuel prices are now set equal to or at 75 percent of the MOPS prices.
The government has said that the new fuel price hike was necessary to help ease pressure on the state budget, heavily burdened by the massive cost of bailing out weak banks.
The new policy is also vital to help end rampant smuggling of subsidized fuel out of the country as set prices based on international price would no longer provide the incentive for people to smuggle fuel.
But raising fuel prices has been a politically sensitive issue in the country where millions of poor people have suffered from three years of economic hardship and where people had long been used to heavily subsidized fuel during the authoritarian rule of president Soeharto.
Legislators are also confused with the new fuel price hike policy as the House of Representatives gave approval in November last year for a 30 percent average increase in fuel prices for 2002, not an arrangement for fuel prices to be set based on fuel prices in Singapore.
Husni Thamrin of the Golkar party said the House planned to summon Minister of Energy and Mineral Resources Purnomo Yusgiantoro next week to explain the complicated fuel prices formula.
"The (new) scheme is out of track. We never made a commitment to raise the fuel prices based on that formula," he said.
Legislator Budi Priyo Santoso sees the new policy as a government trick to avoid consulting with the House in raising fuel prices in the future.
"It's a trick of the government. Three months ago (November), there was no discussion of such a plan, so my colleagues and I were surprised with the new policy."
Elsewhere, Pande said that pegging the price of domestic fuel products to prices in Singapore was ridiculous as the latter was not even a major oil producer.