Indonesia Steps Toward Fuel Hike Despite Protests

By Niniek Karmini 18 June 2013

JAKARTA – Indonesia’s Parliament voted to approve a budget package on Monday that lays the groundwork for the slashing of government fuel subsidies, as police fired tear gas and water cannons outside to disperse hundreds of angry protesters.

The package, which passed after repeated interruptions from lawmakers on both sides, includes a provision for about $900 million in cash handouts to help cushion the impact on 15.5 million impoverished families.

President Susilo Bambang Yudhoyono was expected to move swiftly ahead with the plan to cut the subsidies, which will increase fuel prices an average of 33 percent.

In 2011, the subsidies cost close to $20 billion, the same amount the government aims to spend on infrastructure in 2013. The issue is highly sensitive—a fuel price hike in 1998 triggered rioting that helped topple former dictator Suharto. Last year, Parliament rejected a similar plan to raise fuel prices.

In a speech after the voting, Finance Minister Chatib Basri said the legislators have made the best decision for the country by ensuring that the poorest people are not hit by a sudden spike in fuel costs.

“With the fuel price hike, the poor will increase by 4 million if there are no cash handouts,” he said. The compensation will be paid over four consecutive months.

Even before the vote, street protests erupted in major cities and clashes with authorities were reported. More than 18,000 police and soldiers were deployed to secure the capital, Jakarta. Thousands of police also guarded gas stations across the country. At least 14 people were injured nationwide.

After setting tires on fire near Parliament’s main gate, hundreds of protesters blocked both lanes of traffic in front of the complex for hours. Police later used tear gas and water cannons to disperse the crowd after the rally continued beyond the time limit set for the protest.

The proposed plan would raise the price of gasoline from around 50 cents to 65 cents per liter and diesel fuel from 45 cents to 55 cents. The subsidies have kept pump prices in Southeast Asia’s largest economy among the cheapest in the region, but experts warn they are weakening the economy.

“If fuel prices are not raised, there will always be threats to Indonesia’s fiscal strength, especially threats to the exchange rate, consumption and price of crude oil,” said economic analyst Said Didu. “All three are difficult for the government to control.”

Indonesia, with 240 million people, is the region’s largest oil producer, but has been forced to turn to imports amid skyrocketing demand and decades of declining exploration and extraction. Each year, a million new cars and 8 million new motorbikes hit the streets, according to the Central Statistics Agency.

The government has set the 2013 fuel subsidy at $20.2 billion—nearly 4 percent of total economic output—in the revised budget. It said without the price hike, subsidies would jump to about $29.7 billion this year.

Associated Press writer Ali Kotarumalos contributed to this report.