Government adds fuel to price increase list

A'an Suryana, The Jakarta Post, Jakarta

Instead of chomping down headache tablets for those nursing New Year's Day hangovers, Indonesians were forced to swallow a more bitter pill in the form of sharp price increases dispensed by the government in a bid to lift the country out of its economic ills.

Fuel price hikes of up to 22 percent, effective as of Thursday, were announced Wednesday.

The announcement coincides with an average six percent increase in electricity tariffs and an average 15 percent rise in telephone rates.

The price of premium gasoline was set at Rp 1,810 (about 20 U.S. cents) per liter from Rp 1,750, while automotive diesel climbed to Rp 1,890 from Rp 1,550.

And the government's fuel ceiling prices, the maximum limit prices can increase to in a year, have also been raised, meaning prices, set each month, could continue to climb, depending on international oil prices.

Last year the government, aiming to reduce costly fuel subsidies provided to all but a few sectors, scrapped policy which set the domestic price of fuel products at 75 percent of market prices in Singapore.

The ceiling price of premium gasoline was raised to Rp 2,100 per liter from Rp 1,750 in 2002. The floor price, the lowest prices can drop, was set at Rp 1,650 from Rp 1,450.

The floor and ceiling prices for automotive diesel were set higher at Rp 1,650 and Rp 2,100 respectively.

Floor and ceiling prices for industrial diesel, bunker oil and kerosene for industry were respectively set at Rp 1,600 and Rp 2,050; Rp 1,150 and Rp 1,600; Rp 1,800 and Rp 2,200.

The government only slightly increased the price of kerosene to Rp 700 per liter from Rp 600. The subsidy for this commodity remains huge because it is widely used by low-income people.

The government was forced to cut the subsidy because of the nation's massive debt. The government also said the heavily subsidized fuel was being exploited by fuel smugglers.

To counter criticism, the government said the income gained from the subsidy cut would help finance welfare programs for the poor.

The hike in electricity charges is also in line with the subsidy cut strategy. Tariffs will increase 24 percent this year, with six percent increases every quarter.

The Indonesian Consumer Foundation (YLKI) has criticized the increases, saying it will create serious economic hardship for the people.

YLKI urged Indonesian's to protest.

Economist Didik J. Rachbini said the government had unfairly shifted the burden of the economic crisis to the people, who had been unable to raise their incomes because the government had failed to spur economic growth.

But economist Muhamad Ikhsan said that this year's price hikes were inevitable as they had been postponed several times.

He played down the possible inflationary impact of the price hikes, citing an example of a 6 percent to 24 percent electricity price increase two years ago that had only a small effect on inflation.