Govt defends price hikes despite rising protests

Fabiola Desy Unidjaja and Dadan Wijaksana, The Jakarta Post, Jakarta

Unmoved by thousands of people who rallied on Monday to protest against utility cost increases, the government has defended its decision, saying the policy is part of a pledge to gradually reduce costly and misdirected subsidies.

"The government will not change its policies in the case of the price increases in fuel and electricity and telephone rates because this is a joint political decision together with the House of Representatives," Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti said after a Cabinet meeting.

He said the move was in accordance with existing policy passed by the People's Consultative Assembly (MPR) during the formation of its five-yearly national economic guidance policy in 2000.

The policy says the government must gradually reduce subsidies to zero by 2004 in order to pave the way for larger development allocations, which in turn were expected to stimulate the economy, Dorodjatun said.

He was responding to rising public criticism over the policy.

Led by students, protesters took to the streets on Monday to demand the government cancel the policy, which they said was further damaging the people's purchasing power, especially the poor who were still suffering under the prolonged economic crisis.

The street rallies took place in several cities in Java, Bali, Sulawesi and Sumatra.

A public outcry erupted when the government decided to mark the country's entrance to the new year with a bang by implementing the increases simultaneously.

It raised fuel prices by up to 22 percent in a move to better reflect international oil prices, thus containing the 2003 state budget deficit within a safe level.

That followed average 6 percent and 15 percent increases in charges of electricity and telephone rates respectively. For electricity, the government is implementing the rise each quarter during the year.

However, the government claimed the gradual reduction of subsidies was necessary to avoid repeating past mistakes, in which hefty subsidies were provided by the government only to find that it did not benefit low-income families.

Over these years, the hefty fuel subsidies, for instance, were enjoyed more by the financially secure. A huge volume of the heavily subsidized fuel products were also smuggled to neighboring countries.

Research conducted by the respected Institute for Economics and Social Research, Faculty of Economics, University of Indonesia (LPEM-UI), shows that poor Indonesians only spend 0.2 percent of their total incomes on fuel and electricity consumption, compared to some 8 percent spent by middle-class Indonesians.

This year, the subsidies on fuel products are estimated at Rp 13.2 trillion (US$1.5 billion), far below the Rp 43 trillion set for last year.

Not to mention that, according to the government, the price hike did not directly affect the poor.

It referred to kerosene and power charges for the poor -- customers using below 450 watts per unit -- which are still being heavily subsidized.

Kerosene is widely used as a cooking fuel by poor families.

As for a rise in telephone charges, the government said it would have little impact on the poor as they were owned by only 5 percent of the population, namely the well-off.

Dorodjatun said the government would do its utmost to try to minimize the impact of the price hikes, by, among other things, helping control the prices of basic needs.

"We hope by March or April, things will improve and the prices will stabilize," he said.

Based on last year's experience, Dorodjatun was upbeat that the price hikes would not lead to spiraling inflation.

Early last year, the government applied a similar policy, but it proved to have little impact on inflation. Editorial -- Page 6