Largely muted response to Jakarta's fuel price hike

Largely muted response to Jakarta's fuel price hike

Sporadic protests broke out in some major Indonesian cities following a hefty hike in fuel prices, but the much anticipated move by the government of President Joko Widodo otherwise received a muted public response and was cheered by financial markets.

Hours after subsidised fuel prices went up at midnight yesterday, Mr Hidayat, a motorcycle taxi driver, was charging between 1,000 rupiah (10 Singapore cents) and 3,000 rupiah more for his service. None of the eight customers he had transported before lunch complained about the fare increase.

"My customers understand why I need to raise prices. Some of them even asked if this was enough for me," said the 43-year-old.

The fuel price hike of 2,000 rupiah a litre, from 6,500 rupiah to 8,500 rupiah, was announced by Mr Joko on Monday night in his first major policy move within a month in office.

In Makassar, Sulawesi, students threw Molotov cocktails but police sprayed water cannon to disperse them. Soldiers were also roped in.

In central Jakarta, a group of 50 men who burned tyres hours before the prices took effect disbanded after they were unable to raid a petrol station.

"Conditions remain stable and safe," police chief Sutarman told reporters yesterday, as his officers remained on alert, with men deployed to guard petrol stations in many places.

Economists who view the government's action as an indication of how serious it is about reforms welcomed the move.

Markets reacted favourably with the Jakarta Composite Index moving up by 1 per cent and the rupiah strengthening by 0.4 per cent against the US dollar.

Fuel subsidies cost Indonesia 211 trillion rupiah, or 2.3 per cent of the gross domestic product (GDP), last year, and are estimated to total 250 trillion rupiah this year, or about 2.5 per cent of the GDP. An even larger figure of 290 trillion rupiah from the 2015 budget was approved by Parliament to be set aside for next year.

Economists have said Indonesia needs to reduce or remove the subsidy, as it has been eating into the budget that could be allocated for development spending. Crucially, the subsidy is not benefiting the less well-off whom it was intended for, they said.

But political opponents took issue with the fact that prices were raised in spite of global crude prices sliding recently.

Golkar Party faction head Ade Komarudin said Mr Joko's move was illogical as global oil price is now 30 per cent less than what was factored in the budget, and accused the President of breaking his promise of caring for the people.

Indonesia last raised fuel prices by 44 per cent from 4,500 rupiah to 6,500 rupiah a litre in June last year, but a weakening rupiah negated the benefits from that move, noted economist Chua Hak Bin from Bank of America Merrill Lynch.

During his 10-year term which ended last month, president Susilo Bambang Yudhoyono raised fuel prices four times. He was forced to back off in March 2012 when thousands rallied nationwide in protests.

The largely muted response to Mr Joko was credited to the high level of trust people have in him. He had sweetened the ground sufficiently by distributing welfare incentives, such as education and health-care smartcards, to the poor before making the move.

He had also communicated to the people why the hike was necessary and inevitable.

Ordinary Indonesians are now concerned about inflation as operators will raise prices of basic items like food.

The Indonesia Organisation of Land Transport Owners, which includes the network of bus, minibus and minivan operators, is planning a nationwide strike today to show its concern about rising costs.

Meanwhile, neighbouring Malaysia yesterday surprisingly reduced the price for a high grade of fuel for vehicles, called RON97, by 20 sen a litre to RM2.55 (S$1), reversing a 15-sen hike made in September.

The other grade of fuel, RON95, stays at RM2.30 a litre.

zubaidah@sph.com.sg

Subsidised fuel prices in the region

Most Indonesians buy the subsidised RON88-grade petrol, which has less octane than what is available in most countries.

A litre costs 8,500 rupiah (93 Singapore cents) as of Monday midnight, up from 6,500 rupiah.

The new price is about 70 per cent of the unsubsidised RON95 petrol, which costs 11,800 rupiah per litre.

In Malaysia, Thailand and Vietnam, where fuel prices are also subsidised, a litre of the widely used RON95 petrol costs RM2.30 (89 Singapore cents), 31.88 baht (S$1.26) and 21,990 dong (S$1.32) respectively.

Indonesia spent an estimated 250 trillion rupiah on fuel subsidies this year. That figure is likely to increase to 290 trillion rupiah next year.

The Jokowi administration hopes to save an estimated 193 trillion rupiah after reducing subsidies on fuel. The saved amount could be used to construct as many as 5,500 state hospitals, 48,000 schools or 39,000 train cars.


This article was first published on November 19, 2014.
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