Painful measures

Painful measures

Most analysts are likely to agree on the economic imperative
for the increases in the price of fuel, telephone calls and
electricity announced by the government on Wednesday. Most
politicians also seem to have realized that such painful measures
needed to be taken, otherwise the public might have faced supply
disruptions. After all, the price increases had the prior
approval of the House of Representatives.

But the government should not simply sit back and relax,
assuming that the public will simply accept the bitter pills,
especially as, within the political context of our emerging
democratic system, the House is not yet perceived as the true
representative of the people's interests. The public has instead
perceived most House members as simply corrupt politicians.

The measures, which will hurt those on low incomes the most,
have deeply upset the public's sense of justice, being introduced
at the same time as the government decided to release from
criminal charges "cooperative large debtors", whom the public see
as partly responsible for bankrupting the national economy.

Fuel price increases were widely predicted as a result of the
new fuel-pricing policy introduced last January, which floated
fuel prices, except those for kerosene, on the international
market, using Mid Oil Platts Singapore (MOPS) quotations as a
reference. This means that domestic fuel prices are adjustable
every month based on MOPS quotations and the rupiah's exchange
rate.

As international oil prices have risen markedly due to fears
of shortages caused by the U.S. threat to attack Iraq, a major
oil producer, the government has consequently increased the oil
price range assumed for production costs from US$19 to $26, to
$22 to $28.

Consequently, domestic fuel prices have had to increase as
well, otherwise the Rp 13.5 trillion allocated for fuel subsidies
during the current fiscal year would have been far from
sufficient. Another alternative -- maintaining fuel prices at
their current levels -- would endanger fiscal sustainability at
the expense of macroeconomic stability and hinder efforts to
improve efficiency in fuel usage and to diversify the sources of
commercial energy.

The same rationale applies to the increases in telephone and
electricity prices. The 15 percent hike in telephone rates is the
second phase within a total of 45.50 percent price increase
planned for 2002 to 2004 to attract new investment in order to
expand the telephone network.

Likewise, the 6 percent rise in electricity prices is part of
the quarterly increase that has been agreed on by the government
and House for the whole fiscal year. Without a price increase,
not only would the electricity subsidy far overshoot the Rp 4.05
trillion budgetary appropriation set for the fiscal year; an even
more damaging impact would be a power crisis three to four years
down the road as no new power generation investment would be
commercially feasible.

But, to go back to the basic question: Can the government take
it for granted that the public will simply accept the painful
measures?

The answer is certainly a resounding no. At a time when
increasing numbers of people have been suffering from the
economic crisis and when unemployment, already at a potentially
explosive level, is likely to rise, the additional burdens are
likely to incite public anger through street demonstrations and
further embolden the already radical labor movement.

Public acceptance, which is critical to the effectiveness of
the measures in achieving their objective, will depend on how the
public will perceive the painful policies as fair, necessary and
effective.

The government is trying to establish fairness by protecting
the poorest segment of the public from the brunt of the higher
prices. The government has said it will increase to Rp 4 trillion
the budgetary appropriation for helping the poorest families to
bear the higher prices. The government has also decided to
maintain price subsidies for kerosene, the most-widely used fuel
by poor households, and for small electricity users, who account
for the majority of the state electricity company's customers.

But the public's sense of fairness also depends on the
perception of whether the government is seen to be addressing its
full share of the burden by minimizing waste and inefficiency
caused by corruption and by behaving and acting out of a genuine
sense of urgency and crisis. This is an area where the
government's performance is utterly disappointing and its
credibility critically low.

The government's extreme lack of sense of urgency within the
reform movement and the virtual absence of a sense of crisis
within the behavior and lifestyles of most senior officials and
political leaders have even prompted the public to think that the
policies, which would only add to their suffering, are really not
necessary at all.

The government should go all out to convince the public that
these painful measures are being taken in the public interest and
are based on the principle of equitable burden-sharing. Otherwise
the bitter pills could cause a new bout of social unrest at the
expense of economic and political stability.