INDONESIA: Corruption Blamed for Rising Fuel Prices

By IPS Correspondents Reprint | | Print |

Kafil Yamin

JAKARTA, Oct 1 2005 (IPS) - ”Another corrupt government, another fuel price hike,” said a placard waved aloft by a demonstrator on the capital’s streets, protesting against a hike in petroleum prices on Saturday.

That and similar placards were reflective of popular opinion that the price hikes were somehow linked to various irregularities on the part of the government, including the recent discovery that petroleum was being smuggled out of the country.

People turned out by the thousand on the third day of protests against fuel prices, effective from Saturday, which the government said was necessary to stave off an impending crisis from external debts.

While public expectation was that the price hike would be around 50 percent, the average cost of domestic fuel went up by close to 125 percent. Worst hit was the price of kerosene, used mainly by poor people as cooking fuel and on which there was a rise of 185 percent.

The government promised an interim subsidy of 29 US dollars that is supposed to help 15 million households subsisting on incomes of less than 17 dollars a month.

Minister for Mines and Energy Purnomo Yusgiantoro said there would be no further price hikes this year and said there was a possibility of prices coming down if international prices came down. ”There should be no more price rise until the end of the year,” the official Antara news agency quoted him as saying on Saturday.

But the government promises did not satisfy protestors in several Indonesian cities because the hikes were larger than expected. With petrol prices going up by 87 percent and diesel costs doubling, there were fears of a cascading effect on the prices of goods that are dependent on transport.

It is not just the demonstrators on the streets, but consumer activists and well-respected economists believe that the country could have managed its petroleum resources better and more honestly without burdening ordinary people by lifting subsidies.

”Without strong commitment and real action in combating corruption, lifting subsidies is not going to improve the economic situation,” said Indah Sukmaningsih of the Indonesian Consumers Foundation (YLKI).

Indonesia has consistently been rated by watchdog groups such as the Germany-based Transparency International as among the most corrupt nations in the world.

Fadhil Hasan, an economist at the Institute for Development Economics and Finance (INDEF) has similar views but he preferred to dwell on the question of better management in Indonesia, a member of the Organisation of Petroleum Exporting Countries.

”Increase in oil price has always been followed by rising prices of basic necessities. And now we are facing the holy month of Ramadan and Idul Fitr festivities when prices of basic items soar,” he said.

Hasan said hiking oil prices was not the only way of reducing the 2005 budget deficit. Making strict efficiencies in state-spending from the highest to the lowest level of government administration would, he said, actually be more effective.

”And if it (the government) aimed to prop up the falling rupiah, they are supposed to increase exportation and draw foreign investment,” Hasan said. Both YLKI and the INDEF had separately demanded that the government postpone the new prices until early next year. Already in March, prices had been raised by an average of 29 percent. The anger of ordinary people has been growing not only because of the announced hikes and the reports of petroleum smuggling but also because of hoarding of fuel stocks by dealers out to make a fast buck.

People queuing up for kerosene were to be seen for days in Greater Jakarta, Bandung, Makassar, Medan, with many returning home disappointed.

”Foul-minded businessmen made use of this situation because they can earn a huge profit. They buy at the present low price, then release to the market at the new price. Smart but immoral,” said Baihaqi, a Bogor resident.

”Lifting subsidy on oil is unavoidable because we have a huge budget deficit (of around 46 billion dollars),” said Vice President Yusuf Kalla.

Indonesia’s obligation of repaying its external debt, now recorded at 75 billion dollars, adding to its 65 billion dollars in domestic debt, has caused a massive budget deficit. More than half of the budget allocation is used for external debt servicing.

The scarcity of kerosene and diesel is at least partly caused by huge scale of fuel smuggling out of the country, involving officials of Pertamina, the state oil corporation, and police officers.

Police found that Pertamina workers in the Lawe-Lawe oil refinery in East Kalimantan, had pumped crude oil out to Singaporean tankers offshore. The crude oil was allegedly sold at 35 dollars a barrel, while international prices were more than twice that figure.

Fuel prices are a sensitive issue in Indonesia and former president Suharto was faced with an uprising, which saw his ouster in 1998, after he raised fuel prices in the middle of a serious economic crisis. In 2002, former president Megawati Sukarnoputri was compelled to roll back a fuel price hike that she had ordered.