Yudhoyono says no to fuel price hike

Yudhoyono says no to fuel price hike
A PT Pertamina fuel station worker fills a container with subsidised fuel, as people wait in a line at the Mauk district fuel station in Tangerang, Banten province. Pertamina halted a week-old programme aimed at curtailing the use of subsidized fuel.

MINDFUL of a political backlash in his final weeks in office, President Susilo Bambang Yudhoyono gently rebuffed a suggestion from his successor to raise subsidised fuel prices at a four-eyes meeting on the leadership transition.

Any move to raise prices now is not wise, coming 14 months after the last increase and on the back of higher electricity tariffs and liquefied petroleum gas prices, Dr Yudhoyono told Mr Joko Widodo on Wednesday night.

Fuel price hikes have been politically unpopular, and President-elect Joko's team has been urging Dr Yudhoyono to share the fallout from the move before the handover on Oct 20.

But the president's response, disclosed by Coordinating Minister for Political, Legal and Security Affairs Djoko Suyanto in a statement, is the strongest signal yet that Mr Joko, commonly called Jokowi, and his administration will have to handle this matter on their own.

And not without reason. Yesterday, a survey by the Indonesian Survey Circle said 73 per cent of respondents rejected a fuel price hike in the next six months.

"It will be the people who suffer if fuel prices are raised... inflation will rise, prices will rise, the poverty rate will rise, growth will slow and unemployment will rise," Mr Djoko said.

"The Jokowi administration will still have the space and wherewithal to adjust fuel prices and spending," he added.

The price of subsidised petrol rose by 44 per cent to 6,500 rupiah (S$0.69) a litre last year, drawing loud protests, including from Mr Joko's Indonesian Democratic Party-Struggle (PDI-P).

Yesterday, Mr Joko said he was prepared to be unpopular, and would divert savings from fuel subsidies - which could total 250 trillion rupiah this year and hit 290 trillion rupiah next year if left unchecked - to productive uses.

Dr Yudhoyono, nevertheless, has been keen to help his successor in other ways, and Mr Joko's transition team has been allowed to arrange meetings with key economic ministries to ensure a smooth handover.

He said they would leave technical details of the transition to their officials.

Dr Andi Widjajanto, one of four deputies in Mr Joko's transition team set up to assist him and Vice-President-elect Jusuf Kalla in the handover, said they hope to meet the coordinating economic ministry as well as finance and national development planning ministries to discuss revisions to the state budget to accommodate the new administration's programmes.

Dr Andi said the team had proposed several scenarios of raising fuel prices by between 500 rupiah and 3,000 rupiah.

"If we have to cut the subsidies, we will channel the funds to (productive uses) like small and medium enterprises, the procurement of fertiliser and seeds for farmers, and boat engines for fishermen," he told reporters.

Indonesians have long been used to cheap fuel prices, but surging crude oil prices and declining domestic output have eaten into the state budget, in which energy subsidies account for nearly 20 per cent.

Fuel consumption in Indonesia is about 1.5 million barrels a day compared to crude output of 800,000 barrels.

Standard Chartered economist Fauzi Ichsan told MetroTV that the subsidy regime had to change.

"The country has to import the remainder at a cost of about 11,000 rupiah a litre and sell it at 6,500 rupiah a litre, when 80 per cent of the consumers are the middle class and the rich."


This article was first published on August 29, 2014.
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