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Mega price hikes fuel Indonesia's
discontent
By Gary LaMoshi
DENPASAR, Bali - On New Year's Eve, I pulled
into my local Pertamina station. While waiting for my
tank to fill, I asked the attendant about gasoline
prices for January; for the past year, the Indonesian
government has adjusted the cost of fuel on a monthly
basis and usually announces the new prices a few days in
advance. "Belum tahu," he replied; he didn't know
yet.
At the same time, just a couple of
kilometers away, President Megawati Sukarnoputri and her
cabinet were at the Grand Bali Beach Hotel for a book
launching party for Indonesia's first husband Taufik
Kiemas. The launch coincided with Taufik's 60th
birthday, and a highlight of the day-long festivities
was a gigantic cake, of which Megawati enjoyed a
presidentially proportioned slice.
On New Year's
Day, the government announced that fuel prices would
rise 22 percent, along with 15 percent hikes in
telephone charges and the first of quarterly 6 percent
spikes in electricity rates (see Price hikes add to Indonesians'
pain, January 11). Now we know how to say to "let
them eat cake" in Bahasa Indonesia.
The price
hikes have evoked nationwide protests, now in their
second week. Megawati and Vice President Hamzah Haz, an
economist who understandably prefers acting as
Indonesia's chief mullah to bait the United States, are
the principal objects of scorn. Since police have
promised arrest to those defacing state symbols,
including burning the leaders in effigy, protesters have
been more circumspect, assuring that they're not trying
to topple the regime. That's wise, given the
alternatives; legislators that approved the price hikes
last year have joined the howling masses and called for
hearings.
The demonstrations, nevertheless,
constitute the most serious threat to Megawati's
18-month-old regime. The presence of middle-class and
business groups among the usual suspects echoes the
coalition that brought down Philippine leader Joseph
Estrada two years ago, but the Indonesian military,
unlike its Philippine counterpart, has shown no
interest. The crassness of the government's sudden
announcement and its timing also make it easy for
Indonesia's rabble-rousers to connect the dots about
what really ails Indonesia's economy.
Too easy.
Blame the tycoons
During the waning
days of 2002, the administration signed off on
implementing the deal made by B J Habibie's government
to drop criminal charges against tycoons who abused
Rp144.5 trillion (US$16.4 billion) in emergency rescue
loans for their banks to speculate against the rupiah
and worse.
The original release and discharge
(R&D) agreement called for the banks' parent
conglomerates to repay the government to escape
prosecution. None have. The cooperative ones have made
token repayments of dud assets, worth pennies on the
dollar, to gain their immunity. Last week, a court found
that the R&D deal's implementation precluded a
"guilty" verdict against one banker.
Without the
threat of prosecution and jail, remote given the "for
sale" signs on Indonesian judges, any chance of getting
more than nominal repayments and cooperation from
tycoons vanishes. Moreover, R&D smoothes the
well-traveled road for conglomerates to repurchase their
pledged assets at a fraction of the value of the
repayment credits they received from the government.
There is much talk about "people's sense of
justice" being offended by the price hikes so closely
following R&D implementation. There's a belated
realization that the state's loan losses through
corruption are connected to the budget deficit and the
sputtering economy. The two largest Muslim organizations
have called on the government to jail corrupt figures,
though neither mentioned the top thief, former president
Suharto. Of course, the government can argue that it
always has and will continue to pursue vigorously all
criminals, except, of course, those covered by R&D.
Blame the IMF
Many protesters and
authors of negative articles flooding the local press
blame Megawati for doing the International Monetary
Fund's (IMF) bidding. In fact, the IMF's rescue package
urges that Indonesia cut its budget deficit and reduce
its mammoth subsidies to encourage more rational
investment. The fuel price hikes alone will knock Rp30
trillion off this year's budget gap.
Megawati's
government is happy to let the IMF take the blame. That
line of thinking conveniently transfers the guilt to
foreigners, outside the government's control. Better to
be painted as the pawn of Western financiers than the
protector of thieves.
While the price hikes have
their roots in IMF-directed orthodoxy - probably not the
best prescription for the Indonesian economy at this
time - the protesters miss a key point: eliminating
these subsidies makes sense. Fuel and utility price
hikes resonate throughout the entire economy through
higher transport and production costs, but the direct
hits fall on the relatively rich. Overall, few
Indonesians own vehicles, fewer than 5 percent have
telephones, and 45 percent don't have electricity. The
urban middle class that took the hardest lumps in the
1997 crisis will bear the brunt of this assault, not the
poor masses the protesters purport to represent.
Cushioning the blow for the poorest, the
government also announced a Rp5 trillion relief program,
including subsidized rice rations. The cost of kerosene,
which most poor use for cooking, also remains heavily
subsidized.
In the wake of the protests came
further announcements last week of an assistance package
for small businesses, clumsily timed to head off their
participation in a mass protest planned for Thursday in
Jakarta (it fizzled, drawing far fewer than its 25,000
anticipated participants), and a further export industry
stimulus plan.
Blame the
government
The IMF program may be a problem and
the failure to jail the corrupt, past and present,
certainly is. So is the political class's blatant
disregard for appearances, partying down in Bali for the
new year and handing regular folks the hangover.
Megawati's notorious reluctance to speak
publicly on key issues makes the situation worse. Even
when she has a forum, such as her New Year's address on
national television just after the stroke of midnight in
Bali, she spouts a few cliches and takes a seat. She
belatedly came out of her shell on Sunday, 10 days after
the price hikes were announced, to tell a party
gathering that the subsidies led to piling up foreign
debt (curse you, IMF) and that ending them will help the
economy in the long run. Normally, her words are
revealed only through participants in meetings with her.
Merdeka Palace doesn't even have an official
spokesperson.
The price hikes would have been
far more palatable and understandable if government
ministers had interrupted their holiday in Bali to
present them as part of a coherent economic strategy.
Along with new incentives for business and anti-poverty
funding, the ministers would explain how these moves
were part of a program to hasten Indonesia's recovery
from five years (and counting) of economic crisis.
The real trouble is that the government doesn't
have a coherent economic strategy to present. The
leadership can toast itself on a number of successes in
2002: the rupiah didn't collapse after the Bali
bombings; the Jakarta stock exchange had a better year
than Wall Street; interest rates fell from over 16
percent to 12.75 percent; and inflation barely crossed
into double digits.
None of those wins, however,
moved Indonesia any closer to meaningful recovery, which
requires, above all, putting the estimated 30 million
unemployed to work. It also requires ending the
corruption in business and government that chokes off
opportunities for all while benefiting a favored handful
(most of whom could be found in Bali over New Year's).
Investment figures for 2002, along with yet another
decline in foreign capital, featured a fall from
internal sources. In other words, even Indonesians don't
want to invest in Indonesia any more.
Formulating an economic strategy for Indonesia
is hard. Cutting government subsidies is easy, and it
keeps people talking about the wrong things. Maybe
Megawati isn't as stupid as people think.
(©2003
Asia Times Online Co, Ltd. All rights reserved. Please
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