Indonesians adjust to fuel price policy

The Jakarta Post, Jakarta

A day after the government raised fuel prices, Jakarta remained calm and without the usual protests marking previous hikes, highlighting a growing acceptance among the public that fuel prices must be driven by market forces.

On Thursday, state-owned oil and gas company Pertamina raised fuel prices for May by an average of 14 percent -- its third price increase this year. The public response has been muted, if heard at all.

"We haven't had much in the way of complaints from the public about the (price hike) policy itself," said Sudariatmo, an executive of the Indonesian Consumers' Foundation (YLKI), on Friday.

But that was not always the case. Fuel price rises helped end former president Soeharto's 32-year rule when they sparked widespread protests in 1998.

Soeharto knew the risk, but had few choices.

Since the economic crisis struck the country in 1997, Indonesia has come under the umbrella of an International Monetary Fund (IMF) austerity program whose goals boil down to cutting government spending and bolstering revenue.

Fuel subsidy spending was the first target the IMF said must go.

This year, the government hopes to contain fuel subsidy spending at Rp 30.37 trillion (about US$3.2 billion), compared to Rp 53.77 trillion last year.

Although Indonesia produces its own oil, it relies on imported fuel to offset a shortfall in refinery capacity. The weaker rupiah over the last few years has made imports more expensive.

Cheaper fuel prices here have also led to rampant fuel smuggling, which as yet remains unchecked. The government said as long as the price gap remained, smugglers would continue to seek to profit from it.

Still, it was an uphill battle convincing the public that fuel subsidies should be scrapped. The government's argument was mainly based on the fact that the subsidies benefited car owners and industrialists more than they did the poor.

Soeharto had promoted the opposite belief to justify the subsidies, which many believed were designed to bolster his political support.

While the public may continue to be entranced by Soeharto's arguments, some of the street protests against fuel price hikes could have been politically motivated, according to analysts.

Student protests were a common sight during president Abdurrahman Wahid's 22-month rule.

He twice delayed a decision to raise fuel prices because of the protests. Analysts said Abdurrahman feared his political foes might have hijacked the protests to plot his ouster.

Similar protests led President Megawati Soekarnoputri to delay increasing fuel prices by 20 days in January.

As part of its anti-fuel subsidy campaign, the government introduced a fuel subsidy compensation scheme in 2000 to ease the impact of higher fuel prices on the poor.

It promised to disburse Rp 2.85 trillion this year as part of a poverty reduction program, as well as health and education programs.

Now the government plans to audit the use of the funds following reports that most of the money had missed its target last year due to corruption and poor implementation.

Since January, however, the government has raised fuel prices three times without major protests erupting.

"The government's fuel policy has its benefits in the longer term. And we at the YLKI support it," Sudariatmo said.

January's fuel price hike came together with a new policy that pegs fuel prices to international market prices and requires monthly adjustments.

Ceiling and floor prices were introduced to limit volatility and to let prices move within a range set by presidential decree.

Pertamina announces the fuel prices on a monthly basis, taking into account movements in the Mid Oil Platts Singapore (MOPS) price.

Except for gasoline, the government continues to subsidize domestic fuel prices by 25 percent, or more if the actual market levels surpass the ceiling prices.

The policy applies only to fuel sold at gas stations.

But like motorists, companies pay 75 percent of the market price, which is subject to monthly adjustment, for their fuel.

Sudariatmo, however, said that while the public accepted the new fuel policy, many were concerned that it would cause inflation to soar.

"Prices of products tend to rise because of the psychological effect every time the government says it is going to raise fuel prices," he said.

Economists shared this concern, saying that January's 1.9 percent rise in inflation was due to the government's indecisiveness in raising fuel prices.

For members of the Association of Land Transportation Owners (Organda), the higher fuel prices will cut deep into their profit margins.

According to Organda executive G.T. Surbakti, fuel prices have increased by 55 percent since January.

"We can't go on like this without asking the government to raise fares," he said.

The cost of fuel, he explained, made up 10 percent of the cost structure of a bus operator. His organization's members consists of bus operators plying interprovincial routes.

Surbakti said that within the next two weeks, Organda would ask the government to allow it to raise fares.