Protests over price hike threaten economy

A'an Suryana, The Jakarta Post, Jakarta

The growing protests over a series of government economic policy decisions taken since the start of the new year could potentially lead to serious social and political turmoil that could badly affect the overall economy this year, economists have warned.

Centre for Strategic and International Studies (CSIS) economist Hadi Soesastro criticized the government for failing to provide concrete explanations to the public about the importance of the policies.

"The government has to convince the people that the policies, including the utility price hikes, are correct and prudent so that there will be no more rejection from the public," he told The Jakarta Post on Sunday.

The government recently announced a series of major economic policies to help fix the country's battered economy. They include releasing former bank owners from criminal charges for past crimes if they are deemed cooperative in repaying billions of dollars in debts to the state; the sale of the government stake in state-owned telecommunications firm PT Indosat; and raising fuel, electricity and telephone charges.

The simultaneous increases in utility prices have angered both workers and businesses as they will impose a heavier burden on the many people already suffering from years of economic difficulties and soaring production costs.

Some labor unions are planning to stage massive demonstrations to protest the fuel and electricity hikes.

"I'm concerned that this collective anger could lead to political chaos that would cause the country to lose the momentum for economic recovery," said economist Drajat Wibowo of the Institute for the Development of Economics and Finance (Indef).

He said that the government's real intention in forcing through the utility price hikes simultaneously this year was political in nature as it was trying to avoid raising prices in 2004 during a general election year.

Another Indef economist, Didik J. Rachbini, criticized the government for its incompetence and insensitivity in dealing with economic affairs.

"Even before these controversies, the investment situation was already bad. After these events, the picture will surely get much worse," he said, adding that without new investment, it would be impossible for the government to achieve its 4 percent economic growth target for this year.

University of Gadjah Mada (UGM) economist Sri Adiningsih said that the fuel and electricity hikes would reduce people's purchasing power, which in turn would put a brake on domestic consumption, which has for the past couple of years been the main driver of economic growth amid a lack of investment and weakening exports.

She urged the government to revise the fuel price hike policy, particularly the 22 percent increase in the price of automotive diesel as this was the main fuel used by public transportation.

The government issued a "release and discharge" policy for cooperative ex-bank owners as during the past frustrating four years, the government had not been able to collect the debts owed by the bankers. But critics have said that this policy ran contrary to the public's sense of justice.

The sale of the Indosat stake to Singapore Technologies Telemedia was protested mainly by opposition political parties led by People's Consultative Assembly (MPR) Speaker Amien Rais, partly due to a lack of transparency in the process.

Amien and other opposition politicians have also demanded that the government cancel the utility price hikes.

The government has said that the utility price hikes were important to cut expensive subsidy spending given the limits on the state budget, and to help prevent state utilities from going bankrupt.

But another CSIS economist, Pande Raja Silalahi, criticized the hikes for not being accompanied by a government drive to promote bureaucratic efficiency and fight corruption.

"It should have been done in stages, not all at the same time," he told AFP.

"What is being shown instead to the population is differences of opinion between decision-makers. We have to resign ourselves to the fact that we have an incompetent government."