Lower fuel prices will not quell unrest: Experts

Lower fuel prices will not quell unrest: Experts

JAKARTA (JP): The government's decision to set lower fuel and
power prices may have a little impact in dampening the escalating
social unrest in the country, economists said yesterday.

The compromise to lower fuel prices seemed to be a response to
the increasing social unrest throughout the country during the
past two weeks, said Mari Pangestu, an economist with the Center
for Strategic and International Studies (CSIS).

"But it's too late," she said, pointing out that the unrest
situation was now more than just an objection to the oil price
hikes.

She said that although the recent rioting in Medan, the
provincial capital of North Sumatra, and Jakarta seemed to be
initiated by the increase in fuel prices, it was only one of the
factors in the antigovernment protests, which had led to lootings
and burnings.

"The new policy will not by itself solve the problem (social
unrest)," she said.

Minister of Mines and Energy Kuntoro Mangkusubroto announced
yesterday lower oil prices and electricity tariffs in a hearing
with members of the House of Representatives.

The new prices are set at Rp 1,000 per liter for gasoline, Rp
280 per liter for kerosene and Rp 550 for automotive diesel. The
rise in the electricity tariff has been lowered to 18 percent
from 20 percent previously.

Earlier on May 4, the government raised fuel prices by between
25 percent and 71.43 percent along with the electricity rate in
an effort to reduce subsidies.

Kerosene's price was increased by 25 percent to Rp 350 per
liter, gasoline by more than 71 percent to Rp 1,200, automotive
diesel oil to Rp 600 from Rp 380, industrial diesel to Rp 500
from Rp 360, bunker oil to Rp 350 from Rp 240, and jet fuel to Rp
600 from Rp 420.

The price hikes set off transportation prices soaring as high
as 60 percent, which also triggered a commensurate rise in prices
of basic commodity, causing widespread antigovernment protests
staged by the country's university students.

Anwar Nasution, the dean of the School of Economics at the
University of Indonesia, said that the decision to cut the
increase in fuel prices and electricity tariffs would only show
that the government was inconsistent with its own policy.

"The rice has turned into porridge, and human blood has been
spilled all across the country. So the decision will not end the
rioting and crisis because it hasn't touched the essence of the
problem," he said.

Umar Juoro, an economist at the Center for International and
Development Studies (CIDES), agreed, saying that it would be
better if the government made a more concrete and comprehensive
policy including a cabinet reshuffle and continue to restructure
the country's macro economy that would eradicate nepotism and
crony capitalism.

"The government's agreement with the IMF could not abolish
nepotism practices which have become a long time habit in this
country," he said.

Anwar explained that the government should realize that the
main cause of the fuel price problem was the inefficiency in the
operation of state-owned oil company PT Pertamina which has
resulted in the high cost and huge subsidy.

Economist Faisal Basri concurred, saying that improving the
country's oil industry and cleaning it up from crony capitalism
would have saved the country a lot, pointing out that just from
improvements in the export activities would save between Rp 2
trillion and Rp 3 trillion.

He said that the lower oil price policy may be used as a
justification for the government to slide over some difficult
items in the agreed reform programs because the people had
objected to the cutting of subsidies in oil and electricity.

Mari, however, said that the new fuel price policy did not
contravene the agreement with the IMF, because the deadline for
the subsidies was at the end of the 1998/1999 fiscal year.

"What really matters is the increasing unrest and how the
government would handle it," she said, adding that the IMF and
other institutional agencies would adopt a wait-and-see position
because of the current tense situation. (rei/gis)