Fri, 03 Jan 2003

Prices of goods to go up after utility rates rise

The Jakarta Post, Jakarta

Manufacturers have said the simultaneous increase in fuel prices, electricity and telephone charges would push production costs up, which in turn would increase the prices of goods.

"According to our estimate, the price hike would occur in February," said Thomas Darmawan, chairman of the Association of Indonesian Food and Beverage Industries (Gapmi).

The government increased on Wednesday electricity rates and telephone charges, and fuel prices the following day. The move is part of efforts to significantly reduce expensive government subsidies and help save ailing utility companies from bankruptcy.

But there are fears that the simultaneous price hikes would place a greater burden on the people already suffering from years of economic difficulties.

Thomas said that price hikes in the utilities and fuel products would push up production expenses such as for packaging components, raw materials and transportation.

"To cover the higher expenses, manufacturers will eventually raise the price of their products," he said.

But he added that certain industries might find it difficult to raise the prices of their goods amid weak purchasing power of the people and tougher competition from imported products from neighboring countries. Import tariffs on most products have been cut down to between zero and 5 percent following the implementation of the Asean Free Trade Agreement (AFTA) early this month.

Djimanto of the association of shoe industries (Aprisindo) also said that shoemakers would have to increase the prices of their products.

But his concern was that the higher fuel prices and electricity rates would cut the competitiveness of local industries in the export markets.

Fuel prices rose by between 3 percent and 22 percent on Thursday. Automotive diesel suffered the largest price increase at Rp 1,890, up from Rp 1,550. The prices of the various fuel products could increase again in the future depending on the development of the products in the international market.

Meanwhile, electricity rates have been raised by an average 6 percent, and telephone charges by an average of 15 percent. Electricity rates will increase every quarter this year by an average of 6 percent.

Speaker of the House of Representatives Akbar Tandjung urged the government on Thursday to make concerted efforts to minimize the impact of the fuel price hikes on the prices of goods.

"We expect the government to take measures to limit the effect of the fuel price hike," he said.

Standard Chartered Bank economist Fauzi Ichsan said that the inflationary effect of the fuel price hike would only be significant if the price of oil in the international market soars significantly.

The government will decide each month the price of fuel products based on price developments in the neighboring Singapore market.

Fauzi also said that the simultaneous price increases would not necessarily reduce domestic consumption, which in turn would affect the economic growth target, because the government was planning huge spending for the disadvantaged and the poor. The funds for the spending will come from the savings generated from the subsidy cut.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro said on Thursday that the government planned to provide some Rp 4 trillion -- from an initial Rp 3.1 trillion -- in funds as social compensation for the poor affected by the increase in fuel prices.