Yudhoyono's inaction fuels 'fiscal ticking time bomb'

Yudhoyono's inaction fuels 'fiscal ticking time bomb'
President-elect Joko Widodo (left) with his predecessor, outgoing President Susilo Bambang Yudhoyono.

C'mon, Mr President, what do you mean a fuel price increase would not be "appropriate?" It is difficult to think of anything that would be more "appropriate" and more helpful ahead of next month's leadership transition. Not only would it be "appropriate", but it would also be the right thing to do.

Instead, outgoing President Susilo Bambang Yudhoyono has run for cover again, making the job of common-man successor Joko Widodo that much harder, and forcing Mr Joko to accept full responsibility for an unpopular move he has sworn he won't shy away from.

More critical at this point, however, is not the price, but the 46 billion litre limit set on the volume of subsidised fuel that the state-run Pertamina oil company is lawfully allowed to distribute under the revised 2014 Budget.

Cut-price diesel is calculated to run out on Nov 30 and premium petrol on Dec 19 at prevailing consumption rates, leaving Mr Joko with little choice but to issue a presidential decree raising the cap to cover the anticipated shortfall.

Not only is he required to make the case for emergency action, but he also has to get the measure approved within three months by the new House of Representatives, where he has yet to stitch together a majority.

Presented with such a double whammy so early in his presidency, it is little wonder that he is now talking about possibly delaying the actual price increase until early in the New Year.

Compelled by economic conditions to make three price rises during his two-term presidency, Dr Yudhoyono acknowledges the subsidies are an increasingly serious problem. It is clear he should have started long ago to peg each increase to the world oil price. Instead, with oil recovering in the period after a 28 per cent price hike in May 2008, the President systematically pared down the cost of diesel and petrol to its previous level, later claiming it helped him win an election in which he was already a shoo-in.

In a recent hard-hitting column, Indonesian Chamber of Commerce and Industry chairman Suryo Sulisto called Dr Yudhoyono's refusal to defuse "this fiscal ticking time bomb" an abdication of responsibility and said in one stroke he could help meet the country's biggest economic challenge.

Dr Yudhoyono says Indonesians are already burdened by higher power and natural gas rates, coming on top of an enforced 44 per cent fuel price hike 14 months ago. A 2,000 rupiah (22 Singapore cents) increase now being considered would add 2.8 to 3 per cent to inflation and, in the President's mind, reverse the flow of low-income earners emerging from below the poverty line.

Critics point out that a remarkably efficient safety-net mechanism is already built into the Budget to blunt that concern. Certainly, that has been one of the main topics former trade minister Rini Suwandi and the rest of Mr Joko's transition team have discussed with officials in the lead-up to the handover of power on Oct 20.

A 2,000 rupiah increase would save close to US$1 billion (S$1.25 billion), about a third of which would go into direct cash assistance to 40 per cent of the poorest Indonesians to tide them over the three-month inflationary spike that normally follows a price rise.

With personal animosity trumping politics, coalition-building is proving to be lot more difficult than Mr Joko imagined. In fact, because it is an inter-party and not a presidential exercise, Indonesian Democratic Party-Struggle (PDI-P) chairman Megawati Sukarnoputri's bitterness towards Dr Yudhoyono remains the main obstacle to the Democrat Party joining the ruling coalition.

As long as the Democrats remain on the outside, the outgoing President will be in no mood to do Mr Joko any favours - even if a fuel price increase is something that demands shared attention and shared responsibility. Says one official: "If they could cut a deal, then they can sit down and solve the problem together."

Ideally, the 91-seat Golkar party would have been a good match. But it is far too fractured. Chairman Aburizal Bakrie is clinging on until next year's scheduled convention, and advisory board head Akbar Tandjung's feud with vice-president-elect Jusuf Kalla has ensured he (Mr Kalla) is not the bridge everyone thought he might be. Even if there is a revolt among the party membership, unhappy with the idea of Golkar going into opposition for the first time in its 40-year history, there doesn't appear to be any obvious person to lead it.

That has left Mr Joko with only two other prospective partners to get him over the line - the United Development Party, which is now undergoing a change of leadership, and the National Mandate Party (PAN) of Mr Hatta Rajasa, losing presidential candidate Prabowo Subianto's running mate of convenience.

Given the fact that keeping a ruling coalition in line has always been hard work anyway, Mr Joko could elect to lead a minority government, relying perhaps on the Democrats and PAN to fill the cross benches and prevent an opposition majority on key issues.

Subsidies clearly make addicts out of consumers. When Pertamina sought to ration supplies last month to head off the looming fuel shortfall, it sparked panic buying and long lines at the pumps. The measure was dropped within days on Dr Yudhoyono's orders.

PDI-P has a lot to answer for itself. It stood against every price rise when it was in opposition and, amazingly, was the prime mover behind Parliament's decision to cap 2014 consumption at 46 billion litres during hearings on the revised 2014 Budget in July. When Finance Minister Chatib Basri pointed to the year-end burden they would be placing on their own new administration by not showing more flexibility, PDI-P lawmakers refused to listen. Mr Basri made a point of including his objection in a special note to the Budget law.

In private at least, Ms Megawati has now declared herself "converted" on the subsidy issue, belatedly telling party members that now that they are no longer in opposition, they have to change their mind. It may be time for her to change her mind about the Democrat Party as well.


This article was first published on September 08, 2014.
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