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IMI: Indonesia Raises Fuel Prices

October 5, 2000: IMI: Indonesia Raises Fuel Prices

1. The Indonesian Government raised fuel prices by a weighted average of 12.5 percent on October 1 as follows:

Notes: -- Rp 8,500/$ exchange rate -- Prices at Pertamina stations 

2. Higher world oil prices have swollen the budget cost of the domestic fuel subsidy, almost doubling it from the Rp 22 trillion (about US$ 2.5 billion) provided in the FY 2000 (April-December 2000) budget. The subsidy provides disproportionate benefits to the better-off and has encouraged widespread fuel product smuggling. To compensate the poor for the October 1 price hikes, the GOI promised that the estimated Rp 800 billion (US$ 94 million) in savings to be realized between October and December would be spent on programs to benefit the poor. 

3. Immediate reactions on October 1, a Sunday, were muted. The most violent incident was the burning of a gasoline station in Medan, North Sumatra. When the GOI attempted to raise fuel product prices in May 1998, Medan was the site of serious protests that quickly spread. 

4. On October 2-3, students massed in the South Sulawesi city of Makassar to protest the fuel price hikes. They vandalized the governor's office, burned cars, and abducted two local government employees. During the same period, public transport workers conducted strikes and demonstrated for an increase in the fare structure in Makassar, Bogor (West Java), and Samarinda (East Kalimantan). In a bizarre incident, on October 3, demonstrators in Jakarta vandalized the car of a man who had promised but had not delivered Rp 30,000 (US$ 3.50) per person. The demonstrators had gathered at the Parliament building putatively to protest the price hikes, but dispersed after the promised money was distributed. 

5. Some politicians and analysts criticized the timing of price hikes, coming as they did before the Ramadan fasting period and a seasonal increase in basic commodity prices. The government mounted a price monitoring operation, and Economic Coordinating Minister Rizal Ramli warned that prices should not increase more than three percent (based on calculations of the transportation cost component of retail prices). The Jakarta city administration issued revised retail price limits for kerosene, setting a maximum of Rp 430/liter (US five cents). The city authorities warned that distributors who charge more could lose their distribution licenses. One city official observed that retail prices had risen in many markets to Rp 600-700/liter. 

6. On October 2, the GOI announced in its fiscal year 2001 (January-December) budget proposal that it intends to raise fuel prices another 20 percent in April 2001. The government calculated that this would reduce the fuel subsidy by an additional Rp 4.7 trillion (US $550 million). The budget projects Rp 36.4 trillion for the domestic fuel subsidy. The draft FY 01 budget assumes an exchange rate of Rp 7,300/US$ and an average world oil price of US$ 22/barrel.

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