Fuel prices leap 126.6 percent

Fuel prices leap 126.6 percent

Rendi A. Witular and Urip Hudiono, The Jakarta Post, Jakarta

The government rang in October with a very steep fuel price hike
-- by an average of 126.6 percent -- amid a relatively minor
clash, sporadic protests and long lines at gas stations.

Coordinating Minister for the Economy Aburizal Bakrie
announced that the price of premium (subsidized) gasoline is now
Rp 4,500 (44 U.S. cents) per liter, from Rp 2,400; diesel fuel is
now Rp 4,300 from Rp 2,100 and kerosene, mostly used for cooking
in low-income households, nearly tripling to Rp 2,000, from Rp
700.

The increase was far higher than expected as government
officials previously estimated that the prices would go by
between 50 percent and 80 percent.

Kerosene, which most directly affects the poor, was the
highest increase.

Aburizal had to rush to the Ministry of Finance's auditorium
to make the announcement, arriving shortly before midnight late
on Friday after a prolonged Cabinet meeting at the Presidential
Palace.

Apart from the fuel prices, the government also issued five
incentive packages, which include discounts for certain products,
trade reform regulations, public transportation reform, an
increase in the minimum price of unhusked rice paid to farmers
and a direct subsidy for the poor.

The unpopular decision came after President Susilo Bambang
Yudhoyono won approval from the House of Representatives, in a
273-to-83 vote, to drastically cut the fuel subsidy expenditure,
thereby stopping the bleeding from this year's budget.

As Indonesia has become a net oil importer amid rising fuel
consumption, declining oil production and soaring global oil
prices recently hit US$70 a barrel, the fuel subsidies would have
ballooned well over Rp 110 trillion to keep the fuel prices at
their current levels.

"It is not an easy choice. I understand that this is a bitter
pill but I have to do it to save the country's economy and the
country's future," President Susilo Bambang Yudhoyono said
earlier on Friday while inaugurating a new Astra Honda Motor
manufacturing plant in Bekasi.

Susilo has also won support from clerics, including the ever-
popular Abdullah Gymnastiar, who called on the public to "support
the government's policy because this is not just happening to
Indonesia, but also other countries."

Vice President Jusuf Kalla had previously defended the
government's decision to increase fuel prices ahead of Ramadhan,
saying the people "would consume less kerosene in the month as
they only cook twice".

In his speech, Susilo ensured citizens that the government
would mitigate the inflationary knock-on effects of the hike by
giving money and other benefits directly to the poor.

The government earlier this week transferred Rp 1.7 trillion
of an allocated Rp 4.65 trillion, to the Ministry of Social
Services, which later transferred the funds to government-
appointed PT Pos Indonesia and Bank Rakyat Indonesia branches.

Each of the estimated 15.6 million low-income households
eligible assistance will get Rp 300,000 each quarter over the
next year. Eligible recipients are those living on or below the
poverty line with an individual monthly income of less than Rp
175,000.

Aburizal said when meeting with student representatives hours
before announcing the hike that the government would review at
the end of 2006 its direct, cash-transfer subsidy scheme for low-
income families affected by the fuel price hike, hinting at the
possibility of discontinuing the scheme in the future.

He said it would always be better for the government to
provide "the hook to catch fish" in the form of jobs, rather than
merely "the fish" in handouts.

"But for the time being, we will provide the fish," he said.

This fuel price raise was the second this year, also the
second for Susilo since he took over the presidency last October,
after the March 1 increase by an average of 29 percent.

Also in March, the government made available Rp 17 trillion
directed at easing the plight of the poor, and supposedly used
that money to improve education, health services and rural
infrastructure. With this new package of aid, the total bill for
the year in extra benefits for the poor will reach Rp 30
trillion.

Elsewhere, Minister of Trade Mari E. Pangestu said the
government would continue to ensure that staple foods throughout
the country would remain available and remain at affordable
prices. Prices of rice, sugar and cooking oil had already begun
creeping up even before the actual increase.