Megawati defends price hike policy before party faithful

Rita A. Widiadana and Wahyoe Boedhiwardhana, The Jakarta Post, Badung, Bali

Speaking before thousands of her supporters from the Indonesian Democratic Party of Struggle (PDI Perjuangan), President Megawati Soekarnoputri defended her policy of hiking fuel prices and utility charges amid vigorous protests nationwide, saying the policy would help the economy in the long run.

President Megawati was attending an event marking her party's 30th anniversary on the resort island of Bali on Sunday when she made her first public response to the week-long spate of street protests across the country against the increases in fuel prices, and electricity and telephone charges.

"The people have always been lulled to sleep by subsidies, the money for which comes from the excessive exploitation of natural resources and from the piling up of foreign debts," Megawati said before cheering PDI Perjuangan supporters.

Most of the crowd, however, left the venue before Megawati could finish her address, during which she attempted to rally support for the price increases.

"People must work harder and understand this unpalatable policy (of increasing prices)," she said.

Over the last week, however, there have been almost daily street protests demanding that the government revoke the price hikes and condemning them as being unjust to the poor amid continued economic hardship.

The nationwide protests, which have united workers, students, activists and the business community, marked the biggest public challenge so far to Megawati's one-and-a-half-year-old government.

But in her usual taciturn manner, the president kept silent, leaving it to her ministers to justify the hikes to the public.

Reading from a prepared speech, she explained that subsidies only benefited the middle and upper-income groups.

"I must admit that this is not a popular policy, but I really don't want to mislead my own people and feed them unrealizable dreams while letting the country plunge into a deeper crisis, thus ruining our economic foundations," Megawati told the crowd.

She said the policy would release money to directly help the poor through better access to basic services such as healthcare.

The government has allotted Rp 4.4 trillion (about US$493 million) to reduce the impact of the higher utility and fuel prices on the poor. But the Central Bureau of Statistics has warned of a surge in inflation because of the price hikes. A sharp rise in the consumer price index could drag tens of millions of Indonesians living on $2 a day below the poverty line, according to World Bank estimates.

Megawati said that the painful policy would help the nation's economy in the long run. Economists agree, pointing to the money that can be saved through the elimination of subsidies. This year's state budget assumes Rp 16 trillion less in subsidy spending than last year.

The reduction in subsidies has allowed a more generous stimulus package in the form of government investment and tax cuts to help business cope with the economic fallout from the Oct. 12 Bali bombing. These are job-saving measures at a time when the economy was badly hit by the Bali terrorist strike.

Indonesians, however, have enjoyed cheap fuel and power for some three decades under former president Soeharto, who used subsidies as political tools to lull the opposition.

"It is not easy to change this paradigm which was been employed for more than thirty years," Megawati said.

The 1997 economic crisis forced Indonesia to gradually reduce subsidy spending as part of its economic reform deal with the International Monetary Fund (IMF).

Soeharto's government fell following the subsequent protests, which turned into riots in 1998. The protests have declined over the years under President Abdurrahman Wahid and Megawati.

Analysts now point to a series of unpopular government moves preceding the recent hikes as reviving the nationwide protests.

Workers and students have vowed to continue protesting until the government revokes the price hikes, with 11 student groups from all religions planning more mass demonstrations on Monday. The protesters have also lashed out against policies like privatization and plans to drop possible criminal charges against indebted business tycoons.

The demonstrations in several parts of the country continued on Sunday with some calling for Megawati's resignation.