JAKARTA — Indonesia’s Parliament yesterday approved compensation measures for the poor that the government has demanded before it would agree to cut costly fuel price subsidies which are blamed for undermining confidence in South-east Asia’s biggest economy.
The decision to raise fuel prices, by an average of 33 per cent, now rests with President Susilo Yudhoyono. Government officials have repeatedly stated the price rises would follow shortly after the parliamentary decision.
The country’s Finance Ministry has said spending on fuel subsidies could reach US$23 billion (S$28.9 billion) this year, compared with about US$20 billion last year, if urgent action is not taken.
Street protests erupted in cities and clashes with the police were reported ahead of the decision yesterday. Outside the Parliament complex, more than a thousand students burned tires near the main gate. Elsewhere, protesters attempted to block access to an airport and a main toll road. At least 14 people were injured nationwide.
President Susilo Yudhoyono’s government wants to raise gasoline prices by 33 per cent to help close a widening budget deficit. The proposed plan will increase the price of gasoline from around US$0.50 to US$0.65 per litre and diesel fuel from US$0.50 to US$0.55.
“We reject the proposed cash handouts because it doesn’t address the real issue of poverty. Instead, they’re trying to be like Santa Claus before next year’s general election,” said Mr Said Iqbal, head of the Confederation of Indonesian Workers Union.
International lenders like the World Bank have urged the Indonesian government to eliminate subsidies altogether, as savings could go to crucial social programmes, including healthcare, as well as much-needed infrastructure investment.
However, with national legislative elections scheduled for April next year and a presidential election three months later, fuel subsidies are a hot-button political issue.
“They have to increase the prices because we are bleeding in our budget,” said Mr Didik Rachbini, a prominent economist. “But this is political, a very political issue.”
Hand-wringing on the fuel subsidy issue dating to April has caused foreign investors to abandon Indonesia’s capital and debt markets in recent days and has created growing trade and current account deficits. The rupiah, meanwhile, has fallen to nearly 10,000 against the dollar.
Although Indonesia has plenty of oil production fields and is among the top 25 oil-producing nations in the world, it is a net importer of petroleum. Gasoline is so heavily subsidised that at the end of last year, the country had the lowest fuel prices of any net oil-consuming nation in the world, according to the World Bank.
Before the final vote late last night, the Indonesian Democratic Party of Struggle, the country’s largest opposition party, stated it would reject any plan to raise gasoline prices, saying there are other ways to plug holes in the state budget.
“My party has done calculations and we suggest the government instead work on improving cost recovery in the oil and gas sector by about 153 trillion rupiah (S$19.4 billion),” said one of the lawmakers. “At the same time we recommend improvements in the taxation collection process. There is more potential revenue if we intensify efforts.”
In March last year, Mr Yudhoyono proposed raising fuel prices, but even members of his own coalition revolted at the last minute, quashing his plan at a House session as student and labour groups outside clashed with police officers on live national television.
The revised state budget includes the renewal of a cash compensation programme — around US$900 million — for poor Indonesian families to cushion the blow from the subsidy decision and a resulting increase in inflation, as was done when gasoline prices were raised in 2008.
However, many working class Indonesians have said that any increase in the price of gasoline automatically creates higher costs for numerous items, including food staples, clothing and public transportation. AGENCIES
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