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Fuel en electricity prices down again JAKARTA - Indonesia's government cut selected fuel and electricity prices after recent hikes sparked popular protests last week, but tried to appease its international creditors by saying the move won't have any effect on the 2003 budget. Indonesia pushed fuel and electricity prices higher this month as part of a policy to slash the budget deficit under an International Monetary Fund approved reform program.
Nationwide protests broke out against the hikes last week, forcing President Megawati Sukarnoputri's government into an embarrassing reversal of policy Monday that shows a growing attention to public opinion ahead of next year's direct presidential elections.
Although the cost of fuel will still be higher than at the end of last year, the government has decided to cut back selected prices by between 8.6% and 12.7% at a cost of around one trillion rupiah (EUR1=IDR 9,400) to the state, Finance Minister Boediono told reporters. The government targeted diesel, which is used by public buses and commercial trucks, for the largest decrease, cutting it by 12.7% to IDR1,650 a liter.
Jakarta will also cut electricity prices for selected groups, including small users, Boediono said. All cuts are effective Tuesday. The government subsidized basic utilities for years under former president Suharto as a way of maintaining support for his autocratic government, which fell amid pro-democracy protests in 1998.
The IMF has insisted the government reduce the subsidies, and raise electricity and fuel prices, under a policy aimed at balancing the budget by 2004. The fund argued the subsidies benefited middle class users with cars rather than the poor. A lower budget deficit would allow greater development spending on the poor, the fund said.
Indonesia played down the effect of the price cuts on the budget. Boediono said the government would draw on a "contingency fund" to pay for the extra subsidies. "This is not going to change the state budget," he said. Earlier Monday, Energy Minister Purnomo Yusgiantoro said the country would use windfall profits from high oil prices last year to fund the extra subsidies.
Economists said the small extra cost of the subsidies is unlikely to blow out this year's budget deficit, which is forecast at 1.8% of gross domestic product. Still, the move is likely to spark fears that political concerns could sidetrack efforts to reduce the budget deficit ahead of the 2004 presidential elections.
The IMF, which is overseeing a $5 billion lending program to Indonesia, has pushed for belt tightening to help Indonesia get its finances back in order after the 1997-98 Asian financial crisis. Jakarta spent $60 billion bailing out its banking system after the crisis, and still has a total public debt which is equal to about one year's GDP.
The IMF was unavailable for comment Monday. Indonesia's donors under the Consultative Group on Indonesia, which is led by the World Bank, are meeting for two days from Tuesday in Bali to discuss aid for the country in 2003. Indonesia has asked for $2.8 billion in loans to help fill its budget deficit.
Despite slipping behind on reform commitments - mainly over the privatization of state-owned industries - donors are likely to grant Indonesia the money. The international community wants the country - the world's most populous Muslim nation - to remain stable as the global war on terrorism continues.



Posted in Protests @ 20 January 2003 00:02 CET by Jeroen · 'Blog' RSS feed · permalink






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