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.