Govt defends price hikes despite rising protests

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