Fuel costs an explosive issue for new leader

LIKELY PRESIDENT BAMBANG’S BIG CHALLENGES
FIRST OF A THREE-PART SERIES: FUEL SUBSIDIES

Bambang must juggle harsh economic reality with promises not to raise fuel prices as restive opposition lies in wait

Likely president Susilo Bambang Yudhoyono had little qualms making this promise during his election campaign: There will be no fuel price increase for the poor in Indonesia this year if he takes over office.

It is an issue that will return to haunt him as he aligns his pledges with the difficult task of addressing the country’s chronic problems.

Fuel subsidies will be one of the most combustible issues that the former general will have to deal with as he also grapples with a hostile Parliament trying its best to blow up the matter.

Essentially, he is staring at a double-edged sword.

He cannot keep the lid on fuel prices at home if oil prices are rising worldwide. He has to cut back on the 63 trillion rupiah (S$11.6 billion) subsidy which is already taking up 20 to 30 per cent of the current state budget.

If he does nothing, it will only serve to undermine economic recovery, warn analysts.

Economist Umar Juoro of the Jakarta-based Centre for Information and Development Studies notes: ‘The Bambang government will face a heavy burden if it allocates too much of its resources to just one sector.

‘It does nothing to improve the confidence of investors…For them, it is simple: Oil prices are rising. Do something about it or we won’t pump money into Indonesia.’

But needing to soothe investor concerns and resuscitate a moribund economy is just one side of the problem.

If he slashes fuel subsidies, there are likely to be serious political ramifications at home. Legislators are calling on him to raise prices in November, a month after he enters the Merdeka Palace.

November marks the start of the fasting period – and could potentially stir up unrest if the government goes ahead to raise prices.

Recent history has shown just how powerful the fuel issue can be in destabilising administrations. It triggered the riots in Indonesia that led to Suharto’s fall in May 1998. And nearly all three governments since then have had to deal with wide protests whenever fuel price increases came up.

Indeed, it was based on such concerns that Ms Megawati Sukarnoputri put the brakes on any plans to tinker with existing subsidies earlier this year. The fear was that it would generate even greater hostility towards her regime.

There is a curious ironic twist to the tale now.

Members of her Indonesian Democratic Party – Struggle (PDI-P) have backtracked on the issue. Joining forces with Golkar – which months ago led the charge against Ms Megawati in Parliament to raise prices – the two juggernauts see this as the ‘ideal opportunity to get the Bambang presidency off to a bad start’.

An aide to Mr Bambang explains: ‘This is all about politics. There are some legislators who are spoiling for a fight.’

Indeed, the head of the parliamentary budget committee is senior Golkar legislator Abdullah Zaini, who is reportedly linked closely with party chairman Akbar Tandjung.

Mr Akbar has declared publicly that Golkar will act as a ‘loyal opposition’ in Parliament. Central to his gameplan is to do everything possible to weaken the incoming administration, with hardliners in his group disclosing privately that they want to topple Mr Bambang within a two-year period.

One of them has told The Straits Times: ‘We want to give Bambang some shock therapy. He keeps saying that he does not need parliamentary support because he has the backing of most Indonesians. Let us see how he deals with the fuel subsidy issue.’

Some argue that Mr Bambang might not have as serious a problem as his predecessors in pushing through with unpopular policies given his widespread popularity and better communication skills.

Economist Chatib Basri from the University of Indonesia says: ‘It is better that he takes the decision now … The key is communication. He should educate the public that the decision has an economic rationale, but that it will also not harm the poor.’

Some believe Mr Bambang’s preference will be to apply a more targeted and ‘pro-poor’ fuel subsidy in order to strike a balance between reducing pressure on the state budget and protecting the less well-off in Indonesia.

The thinking here is that the current subsidies favour the rich – from big companies to car owners. In that light, he might raise prices for bunker oil, premium petrol and industrial diesel oil.

But he is unlikely to get rid of subsidies for automotive diesel oil and kerosene, which are used largely by the poor.

So, there might be solutions to ward off potential problems on the streets. But the bigger dilemma for him will be how to deal with Parliament.

Restive legislators from Golkar and PDP-P will be looking to sabotage whatever initiatives he proposes.

It looks as if it would be easier for the new president to win on the streets than in Parliament.

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