Indonesia Wary of Protests over Gas Prices

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Two Indonesian officials at a news conference on fuel prices.

Indonesian Chief Economic Minister Aburizal Bakrie, left, and Mines and Energy Minister Purnomo Yusgiantoro attend a news conference announcing new fuel prices, in Jakarta. Reuters hide caption

itoggle caption Reuters

More than 5,000 police are guarding Indonesian government buildings ahead of expected protests over fuel-price hikes. President Yudhoyono will raise prices 87 percent Saturday to help cut crippling energy subsidies. Panic buying has already begun.

MELISSA BLOCK, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

MICHELE NORRIS, host:

And I'm Michele Norris.

Gassing up your car is a real sting these days, but imagine if you went to the station and the price had gone up more than 80 percent overnight. Well, that's what's going to happen tomorrow in Indonesia. The government there is trimming massive fuel subsidies to help balance its budget, increasing the price of gasoline 87 percent. Economists say the measure is crucial, but as NPR's Michael Sullivan reports, it may cause trouble for Indonesia's government.

MICHAEL SULLIVAN reporting:

Indonesians pay less for gas than you do, a whole lot less. In fact, they pay less than just about anybody. Gas here costs about a dollar a gallon, but that cheap gas comes at a steep price for the government. The subsidies it pays to keep prices low will cost the cash-strapped Indonesian government about $14 billion this year alone.

Mr. JOEL HELLMAN (World Bank): The Indonesian government is spending a huge portion of its development budget--what it should be spending on roads, schools, hospitals--on fuel subsidies.

SULLIVAN: Joel Hellman is the World Bank's deputy country director for Indonesia.

Mr. HELLMAN: Eventually, they had come to a point where the fuel subsidies were so high that it was becoming untenable because it was crowding out all the spending it could be doing on the basic infrastructure needs, social needs to help develop the country.

SULLIVAN: Those infrastructure needs include more investment for Indonesia's domestic oil and gas industry. Indonesia is a member of the Organization of Petroleum Exporting Countries, but it is the only OPEC member that is a net importer of oil. Inefficiency, lack of investment and rampant corruption, especially smuggling, have all contributed to the country's declining production and increasing reliance on imports. All of these factors contributed to President Susilo Bambang Yudhoyono's decision to lower subsidies by raising prices.

And in preparation for those increases, scenes like this one were common today around Jakarta, motorists lining up by the hundreds to fill their tanks for about half of what it's expected to cost tomorrow. This motorcycle taxi driver, Budi Sethiyawan(ph), scowls when asked about the increase.

Mr. BUDI SETHIYAWAN (Motorcycle Taxi Driver): (Foreign language spoken)

SULLIVAN: `I'm not happy with this decision,' Sethiyawan says, `because at the end of the day, it's us poor people who will be the ones who are hurt the most.' His wife May(ph) says prices in the food shops are already increasing in anticipation of higher fuel prices. But she thinks the idea behind the price hike is a good one.

MAY (Sethiyawan's Wife): (Foreign language spoken)

SULLIVAN: `I like it that the government wants to use the money it saves to help create more services for us, more schools for my daughter. But I hope that the money the government saves doesn't disappear,' she says, `before it reaches us.'

(Soundbite of demonstration)

Unidentified Woman: (Foreign language spoken)

SULLIVAN: For the past two days, demonstrators have been on the streets of Jakarta and several other cities, demanding that the price hike be rescinded and that the president's economic team step down.

(Soundbite of demonstration)

Unidentified Man: (Foreign language spoken)

SULLIVAN: In Indonesia, these demonstrations are often raucous, freewheeling affairs, but this one seemed a bit halfhearted and entirely too civil, with police handing out sweets to demonstrators, who responded with thank-yous and smiles. The government is providing the poorest of the poor cash payments of roughly $10 a month for three months to help them cope with increased prices for kerosene, food and other basics. If the protests remain muted and if the compensation scheme works, the World Bank's Joel Hellman the people will benefit in the long run. A billion dollars a month could go a long way, he says.

Mr. HELLMAN: If they use that money wisely and invest that money wisely to sort of build a stronger social sort of safety net and a social foundation for growth, then, you know, within six or 12 months, you'll start to see a real boost as a result of this.

SULLIVAN: But it could be painful getting to that point, despite the muted opposition so far. And some warn there is a precedent for concern. In May 1998, then President Suharto raised fuel prices by roughly 70 percent under pressure from the IMF to cut subsidies. The riots triggered by that decision helped lead to his ouster just a few weeks later. Michael Sullivan, NPR News, Jakarta.

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