Govt cuts fuel prices after tragic rioting

JAKARTA (JP): The government announced a cut in fuel prices and electricity tariffs yesterday, effective from today, after recent increases were blamed for igniting riots in the capital and several other cities.

Minister of Mines and Energy Kuntoro Mangkusubroto, announcing the cuts at the House of Representatives (DPR), said the government would reduce the price of premium gasoline to Rp 1,000 per liter (about 8.5 US cents) from the current level of Rp 1,200.

Before the government raised prices on May 5, premium sold for Rp 700 per liter.

The minister also said the price of automotive diesel would be cut to Rp 550 per liter from Rp 600. Before the recent price increase it sold for Rp 380 per liter.

The price of kerosene, which is widely used for household fuel, would be returned to the pre-May 5 price of Rp 280 per liter. It had been raised to Rp 350 per liter.

Kuntoro also said the government would reduce increases scheduled for August and November to 18 percent. Initial plans were to increase tariffs by 20 percent on each occasion.

The increases in fuel and electricity prices were brought about through presidential decrees, so the cuts would require the same backing, Kuntoro said.

"I apologize if the cuts are not as much as people had hoped for, but it is the best we can do.

"I hope these small cuts can significantly reduce the burden on peoples' lives," Kuntoro said at a joint working session with House Commission V on mines, energy, industry and trade, and House Commission VII on budget and finance.

Kuntoro was joined by Minister of Finance Fuad Bawazier at yesterday's session.

Fuad said the cuts would cost the government an extra Rp 2 trillion in budgetary funds, bringing total expenditure on fuel and electricity price subsidies to Rp 9.5 trillion in this financial year.

Due to limited sources of domestic funds, Fuad said, the extra subsidies would be financed by foreign loans.

Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita said yesterday that he had consulted with the International Monetary Fund (IMF) Managing Director Michel Camdessus on the decision to lower prices of fuel and electricity, and that the IMF man had been sympathetic to the need for such a move amid the increasing hardship in society.

"I talked with Mr Camdessus by telephone today," he told reporters at a media conference yesterday evening.

He added the move did not violate the agreement with the IMF because it stated clearly that subsidies would be abolished gradually.

At a session involving Kuntoro and House Commission V last week, all four factions in the House rejected the move to increase fuel and electricity prices and asked the government to rethink the decision.

In contrast to last week's session, yesterday's session lacked heated debate and lively discussion.

The factions took turns to read out their opinions on fuel and electricity prices then reached agreement after a placid one hour lobby.

All factions called on the government to review or reverse the fuel and electricity price increases, saying they had aggravated public difficulties.

They also regretted the fact that the government had not consulted the House of Representatives (DPR) before deciding on the increases.

Nicolaus Daryanto of the Indonesian Democratic Party (PDI) faction and Sudirman of the Armed Forces faction said in speeches that there were indications the decision was taken under pressure from the International Monetary Fund (IMF).

"The IMF probably did not anticipate the high social costs of the change because it tends to concentrate on economic effects alone," Sudirman said. (jsk/rid/rei)