Fuel price rise tests Indonesia leader's poverty pledge

JAKARTA - In an old cemetery in the Indonesian capital, Enur's family and others live in makeshift houses between tombstones, a handful of the millions of poor people that new President Joko Widodo has pledged to help.

But Widodo's promise to close a fast-growing wealth gap is looking tougher after his decision last week to hike subsidised fuel prices, which observers warn will hit the poor hard as food prices rocket due to higher transportation costs.

While the reduction in government subsidies is widely viewed as the right move towards getting Southeast Asia's top economy back on track, for those at the bottom it will mean a harder time in the short term.

Enur, 40, who earns about 50,000 rupiah (S$5) a day to feed his family by driving a construction truck and selling fried snacks, sees no other choice than to borrow more to deal with an expected spike in inflation.

"What else is there to cut? Should I halve our daily rice intake? My children will be crying in hunger," the father of two, who has another child on the way and goes by one name, told AFP.

It is the same story for his neighbours at the Jakarta cemetery, many of whom work as scavengers in the city's rubbish dumps, hunting for plastic bottles and cardboard boxes that they can sell on to scrape by.

About 100 million Indonesians, out of a population of 250 million, have missed out on the country's sustained economic boom over the past decade, living below or just slightly above the poverty line.

Rising inequality

The country's Gini coefficient, which measures income inequality, rose from 31 per cent in 2001 to 41 per cent in 2012, one of the fastest rates in Asia, the World Bank said. The higher the figure, the less evenly wealth is distributed in an economy.

The gap is all too clear in Jakarta, a sprawling metropolis where flashy Lamborghini sports cars zoom past people hauling wooden carts filled with rubbish that they are trying to sell, and in which they sleep at night.

In the short term, the increase in fuel costs risks widening this gap. Fuel prices rose more than 30 per cent, to 8,500 rupiah for a litre of petrol and 7,500 rupiah for diesel, but are still among the cheapest in the world.

While it is Indonesians wealthy enough to own cars and motorbikes who mainly benefitted from the subsidies, they are not the ones who are hardest hit when the payouts are cut, observers warn.

The government predicts inflation will increase by around two per cent in the coming weeks but the poor, who often live in remote places where it is more difficult to transport food, will face even higher price rises.

Inflation was 4.8 per cent year-on-year in October.

Nevertheless, observers agree that Indonesia had no choice but to reduce the subsides that gobble up a huge chunk of the state budget, particularly at a time growth is slowing and the money is needed to help the economy.

"It is a bitter pill that we have to swallow because we need it," Asep Suryahadi, the director of a think-tank focusing on poverty, SMERU, told AFP.

They also say that any inflation spike is likely to be temporary -- after an increase in the fuel price last year, the rate jumped initially but then dropped back.

Widodo, who took office last month, argues that in the long term the money can be diverted to aid the poorest, through programmes aimed at helping the country's many millions of hard-pressed farmers and fishermen.

Just before the fuel price was increased, Widodo, known by his nickname Jokowi, also launched a system of benefit cards to help the poorest across the sprawling archipelago.

This included immediate cash handouts for the poor families to cushion the impact.

However analysts believe that such moves are insufficient to stave off the short-term effects of a broad rise in the cost of everyday goods.

"These cards are an intervention to solve a long-term problem," said Sonny Harmadi, an economist from University of Indonesia's demographic institute.

While he is worried about the looming price increases, Enur is also patiently looking to the long term, and hopes the new government might find him a secure job.

"Give us a job, a barn where we can do the simplest of tasks such as making shirts, stitching buttons, and give us houses next to it," he said.