Govt should not play down effects of price rises

Govt should not play down effects of price rises

Benget Simbolon Tnb., Jakarta

The government was aware the general public would be worst hit
when it raised on Oct. 1 the average price of fuel. But the
effects of the price increases have apparently gone beyond what
was expected.

Analysts had warned that after the 1998 financial crisis and
the March fuel price increases, the October increases of more
than double on average would be too much to bear. They said the
economy would suffer.

Seemingly, their prediction was accurate. And the media has
had much sympathy for the hardships of the nation's poorest
people, with daily stories on the negative impacts of the policy
nationwide.

Thousands of fishermen across the country are reportedly
unable to go out to sea due to the high price of fuel.
The latest report from Cirebon, West Java, for example, said
hundreds of fishermen would lose their jobs.

Thousands of small and medium enterprises -- which during the
seven-year multi-crisis provided employment for people as the
jobless rate soared -- are struggling, while hundreds of others
have gone bankrupt.

The latest report from Medan said hundreds of companies could
be forced to close down due to the fuel price increases, which
had a knock-on effect on the price of just about everything else.

With weaker purchasing power, the price increases have been
most painful for those without a fixed income.

Most of the salaries of many workers is spent
on transportation, the cost of which has increased by up to 100
percent. And they have to cut their spending on food, their
children's education and other such necessities.

Indeed, the Central Statistics Agency (BPS) reported an
inflation rate of 8.7 percent during last October alone. And a
cumulative inflation during the January-October period this year
of 15.6 percent -- the highest during the last five years.

The rising inflation rate will force the central bank, Bank
Indonesia, to further raise its benchmark interest rate, which
has already reached 12.25 percent.

This will certainly cause the rates of commercial banks to
rise, discouraging businesspeople from investing.

The rising inflation and interest rates will
jack up production costs and render Indonesia's exported goods --
which have been already facing difficulties in competing with
other countries' goods -- less competitive on the global market.

Such a condition will choke the growth of the economy,
increasing the jobless and poverty rates.

According to the BPS, the number of poor people
here had reached around 50 million before the fuel price hike of
around 30 percent in March. But some analysts said that half of
the population of 220 million population were poor.

With the March increase, there were reports that the number of
poor people was increasing, and had even doubled in a number of
regencies.

The latest fuel price increases of 120 percent on average will
no doubt mean more people go without. The rising number of people
living in poverty will enlarge the problems of the security,
health and education sectors and increase the rate of crime.

According to the Institute for Ecosoc Rights (IER) about 1.5
million children across the country were malnourished in 1998.
That figure increased after the March price rises and will
continue to do so.

In education, although there has been no report yet, the
school dropout rate appears to be on the rise.

The government has taken several steps to address the poverty
problem, including financial cash aids, health insurance for some
low-income families, cheap rice, free education and health care
and low-interest loans for the poor, and most recently, direct
cash assistance of Rp 100,000 (around US$11) per month per
household.

However, the programs are far from enough to tackle the
poverty problem. Also, they are not effective due to corruption
and the poor condition of bureaucracy. The disbursement of cash
aids, for example, had to be suspended in some areas as it turned
into a fiasco and even caused fatalities in several cities.

The current situation should serve as a warning to the
government, both economically and politically.

It should encourage the government to take further steps to
offset the effects of the fuel price hike.

In the case of the poverty-related problems, the government
should not shy away from calling for more international help if
it cannot address them thoroughly.

The author is a staff writer at The Jakarta Post.