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FUEL WOES: Jakarta residents collecting diesel from a leak in an oil pipeline on Thursday. Indonesia's economic woes are expected to worsen as higher fuel prices spark higher inflation. -- PHOTO: REUTERS
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JAKARTA - FUEL prices in Indonesia went up by nearly 30 per cent last night after President Susilo Bambang Yudhoyono approved a controversial plan to reduce oil subsidies, a move fraught with political risks.
At a late night press conference, Energy Minister Purnomo Yusgiantoro said that prices of kerosene, diesel and premium petrol at gas stations and other outlets would be increased from midnight.
The price for kerosene went up from 2,000 rupiah (29 Singapore cents) per litre to 2,500 rupiah, premium petrol from 4,500 rupiah per litre to 6,000 rupiah, and diesel from 4,300 rupiah per litre to 5,500 rupiah.
Coordinating Minister for People's Welfare Aburizal Bakrie also announced a compensation package for poor Indonesians, including cash handouts and credit without collateral to small-time businessmen.
But days before the announcement, the package of cash assistance to help 19 million families was not enthusiastically received by regional officials and district leaders worried about the backlash from families not included in the scheme.
On Wednesday, protests over the price increases turned violent for the first time.
The scene was reminiscent of May 1998, when violent demonstrations against a fuel price hike eventually brought down then President Suharto.
Indeed, Dr Yudhoyono's rivals have been whipping up emotions by supporting the protesters.
Presidential hopeful and former military commander Wiranto ran a newspaper advertisement on Wednesday accusing the President of breaking a promise made last year not to raise fuel prices until next year.
'People still remember the promise he made about not raising fuel prices,' said legislator Alvin Lie of the National Mandate Party. 'With this fuel price increase, his credibility is being questioned.'
Analyst Sukardi Rinakit of the Jakarta-based think-tank Soegeng Sarjadi Syndicate said Dr Yudhoyono's battered reputation would affect the popularity of political parties aligned to the government.
'But it is still too early to say that he won't be re-elected next year,' said the analyst.
If a promising new presidential hopeful appears before that, voters could suffer the so-called 'mudah bosan' syndrome - which means they are getting tired of the incumbent.
That could hurt Dr Yudhoyono's re-election chances.
But Mr Rinakit said most voters in next year's presidential election were likely to suffer from 'mudah lupa' - short-memory syndrome - instead.
That means they would vote for Dr Yudhoyono, having forgotten about the fuel price increases.
Economist Umar Juoro of the Jakarta-based Centre for Information and Development Studies expects Indonesia's economic woes to worsen as higher fuel prices spark higher inflation.
Dr Yudhoyono has had little choice but to raise fuel prices because soaring crude oil prices are putting a strain on a government budget that provides subsidies to keep domestic prices artificially low.
In fact, Mr Juoro said the 28.7 per cent fuel price increase was not enough to compensate for crude oil prices that are expected to soar beyond US$135 (S$183) a barrel in the coming months. It would be better to more than double the fuel price in one go as the impact would be the same as a smaller increase.
'If the government has to raise fuel prices again in September or next year, it would not be good for Dr Yudhoyono. There will be a political cost,' he said.
This week, government ministers campaigned vigorously in the media to justify the fuel price increases in a bid to cut the subsidy to 132 trillion rupiah (S$1 billion) from the 190 trillion rupiah it had to pay when crude oil prices soared to US$130 per barrel.
Vice-President Jusuf Kalla said this week that the money saved could be diverted to finance programmes for the poor as the subsidy scheme tends to benefit the rich more.
salim@sph.com.sg
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