Fueling reforms

Fueling reforms

It is the single most unpopular decision any Indonesian president could make, with the potential to trigger immediate political unrest. But the move by President Susilo Bambang Yudhoyono to cut costly fuel subsidies and so push fuel prices up by 30 percent in a poor nation is also the single most important decision for the recovery of the ailing Indonesian economy.

The former president, Megawati Soekarnoputri, long understood this link, but lacked the political courage to take on the protesters. On Tuesday, however, fuel prices did finally rise, despite the unhappy mobs and panic buying at the petrol bowsers.

But the big picture is this. Subsidies distort national economies. Indonesia's huge population, and years of economic stagnation since the 1997 Asian economic crisis, has raised popular fears of a slide backwards into deprivation. Economic growth of 7 percent is needed just to absorb the millions of school leavers who spill into the job market every year.

Clearly, Susilo must do much more than raise fuel prices to persuade foreign investors that he can deliver reforms. But it is an crucial step. He must also tackle endemic corruption and revive confidence in the legal system to woo investors back. -- -- Sydney Morning Herald