Third straight cut is meant to help poor, but analysts link it to coming elections
By
Salim Osman, Indonesia Correspondent
JAKARTA - INDONESIAN President Susilo Bambang Yudhoyono is cutting fuel prices for the third time in recent weeks to cushion the impact of the global crisis on the poor and control inflation as the country gears up for legislative and presidential elections this year.
After a Cabinet meeting late on Monday, Dr Yudhoyono announced that the price of premium petrol will fall from the current 5,000 rupiah (67 Singapore cents) a litre to 4,500 rupiah. The price of diesel will drop from 4,800 rupiah a litre to 4,500 rupiah.
The cuts, which come into effect tomorrow, will almost erase the 30 per cent increase which Dr Yudhoyono had pushed through in May last year.
It remains to be seen if Indonesians will see any change in their living costs after complaining that the first two cuts last month failed to reduce the prices of foodstuffs and transportation costs.
For example, there was no reduction in the price of kerosene, widely used for cooking among Indonesia's vast underclass, which remains at 2,500 rupiah a litre.
Addressing those concerns, the Indonesian leader said that it was not possible to bring down prices of all commodities because that would affect the livelihood of Indonesian farmers, whose earnings depend on the prices of the crops they grow.
'We want prices to be within the reach of many,' he added. 'We can regulate the prices of only certain items. The prices of other items are determined by market forces,' he told a press conference at the Istana on Monday.
The government said it would be able to cut the price of cooking oil from the current 10,000 rupiah a litre to 7,000 rupiah. It will also produce its own cooking oil priced at 6,000 rupiah a litre for the 18.2 million poor households.
Dr Yudhoyono added that with the fuel price cuts, the government intends to bring down the cost of transportation by 10 per cent through fare reductions, also effective from tomorrow.
But transport operators yesterday resisted the government's call, saying that they would be able to cut only 5 per cent of transport fares because fuel price constitutes only one small part of the price determinants.
'Our fares are determined by a host of factors. Besides fuel price, we need to take into account the price of spare parts, the price of vehicles, and hidden costs like extortion,' said Mr Murphy Hutagalung of Organda, the Land Transport Organisation.
Food producers, however, said that they would try to bring down the prices next month by between 5 and 10 per cent after Chinese New Year. 'The price reductions will be carried out in stages, in line with the fall in transportation costs and electricity tariffs,' said the chairman of the Food and Drinks Producers Association, Mr Thomas Darmawan.
Analysts say that the Indonesian leader's announcements of fuel price cuts were pitched with the coming elections in mind as voters' concerns will be on bread and butter issues.
Dr Yudhoyono has said he will run for re-election in the presidential polls, due to take place in July after the legislative elections in April, when his government's track record in managing the economy, tackling graft, creating jobs and alleviating poverty will come under scrutiny.
