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Indonesia Struggles to End Fuel Subsidies

Jalin/Agence France-Presse — Getty Images

Demonstrators burned tires as thousands of Indonesians marched on the May 1 holiday to protest a proposed rise in fuel prices.

By JOE COCHRANE
Published: May 2, 2013

JAKARTA, Indonesia — The fruit and vegetables that slowly gather flies in the morning heat at the Bendungan Hilir market in central Jakarta include both imported and Indonesian produce, but according to local sellers, origin does not matter: Everything is expensive.

Indonesians are accustomed to the pain of rising food prices in a country where about 100 million people live on $2 a day or less. But both patrons and vendors at the market think things will get worse: The low fuel prices they count on, kept among the cheapest in the world by aggressive subsidies, may soon skyrocket, too.

The national government has announced it wants to increase the price of gasoline, because state subsidies that keep it well below the international market rate are burning a hole in the budget.

The country’s Finance Ministry says spending on fuel subsidies could reach $23 billion in 2013, compared with about $20 billion last year. Total subsidies for electricity and fuel could end up costing about $32 billion, or 20 percent of the 2013 budget. The Indonesian government’s statistics show that it spends more on fuel subsidies annually than it does on social programs and capital expenditures combined.

On Tuesday, PresidentSusilo Bambang Yudhoyonosaid he would submit a revised 2013 budget to the House of Representatives in May that would include a fuel price increase, but would also revive a cash compensation program for poor families to cushion the blow.

“Usually when the price of gasoline goes up, all other prices go up,” said Therasa Natalia, 22, who runs a noodle stall in the market. “It pushes up transportation costs, and everything from food to clothes is higher. Even if it’s only private cars paying more, everything will go up. It’s always like that.”

Last month, Mr. Yudhoyono’s government floated the idea of a two-tier gasoline pricing plan meant to shield Indonesia’s poor and lower classes from higher costs.

People who drive motorcycles and public transportation vehicles would continue to pay 4,500 rupiah per liter, or about $1.74 per gallon, while owners of private vehicle and commercial vehicles like delivery trucks and company cars would pay 6,000 rupiah, a 33 percent increase.

However, cabinet ministers and aides to Mr. Yudhoyono said this week that under the new plan, fuel prices would probably increase for everyone to 6,500 rupiah per liter. On Wednesday, tens of thousands of people from labor unions and groups representing women, students and environmentalists protested that proposal during street marches to observe Labor Day.

Although Indonesia has a plenty of oil production fields and is among the top 25 oil-producing nations in the world, it is a net importer of petroleum. Gasoline is so heavily subsidized that at the end of 2012, the country had the lowest fuel prices of any net oil-consuming nation in the world, according to the World Bank. The second-lowest was the United States, where a gallon sold for $3.29 on Dec. 31 — nearly twice as much as in Indonesia.

The Indonesian Finance Ministry has estimated that the country will exceed the 2013 budget quota of 46 trillion liters, or 12 trillion gallons, of subsidized fuel by at least 15 percent or more. Savings from eliminating or reducing a fuel subsidy could go to crucial public social programs including health care, as well as much-needed infrastructure investment, according to analysts.

Ms. Natalia said she would be willing to endure higher gasoline prices — and the accompanying increases in the prices of food, clothing and other items — if the government would spend every penny of the money it saved on social and national development programs.

But even then, she had doubts. Ms. Natalia predicted that unscrupulous traders would start hoarding staple foods like rice before a fuel price increase to drive prices up even further, perhaps setting off a crime wave in Jakarta.

“It’s the ordinary people who are victimized,” she said.

Indonesia Struggles to End Fuel SubsidiesJalin/Agence France-Presse —

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