An Indonesian man checks the price of fuel after filling up

The Indonesian government is planning to raise the price of gasoline from April 1. Observers fear the move will not only have a far-reaching impact on the country’s economy, but also on the poor. The government’s decision to raise the price of gasoline has angered people in a number of cities across Indonesia. From Jakarta to Makassar, Yogyakarta and Pontianak, there have been public protests with an increasing number of people speaking out against the price hike.  “If the prices rise, down with the government,” read some of the placards held by demonstrators, who refuse to accept the decision to raise the price of gasoline from 4,500 ($0.49) rupiahs to 6,000 per liter.

The initial announcement has come as a surprise, as it was not planned in 2012’s budget but parliament is expected to approve the hike next week.
“According to our own data, and also data provided by many institutions, the recent decision of the government to increase the price is not really urgent and is thus unacceptable,” said Eva Kusumasundari of the opposition Indonesia Democratic Party of Struggle (PDI-P).
However, Evita Legowo, director general of oil and gas at the energy ministry, defended the plans, citing a worldwide rise in petroleum prices.
“In the last three months, the price of crude oil has been higher than we expected. That is why we hope they will say yes to the price rise.”
As gasoline is subsidized in Indonesia, the government hopes to cut its budget deficit by receiving an extra 17 trillion rupiah through move.
Indonesian students shout slogans during a demonstration

People have taken to the streets to demonstrate against price hikes.

Impact on the economy and the poor.

However, observers fear the increase will have a negative impact on the economy leading to an increase in the price of most goods and causing people to dig deeper into their pockets. Economists say there will most likely be a slowdown in growth.  Arianto Patunru, director of the Institute for Economic and Social Research of the Department of Economics at the University of Indonesia, does not expect long-term inflation however.  “Experience tells us there will be inflation, but as it normally goes in Indonesia, it will die out after three months.”  He is more worried about the government’s indecisiveness on whether there will be a price hike or not, which is “having a psychological impact on the market. That’s why the prices of many goods are rising.”

Ita, a student from the Balinese city of Denpasar, says she has already noticed the changes: “Food prices are rising but wages remain the same. Once again, it is the poor who will be hardest hit,” she says. Although all Indonesians will feel the pinch, life will become even more difficult for those 18 million who are living on or below the poverty line. According to a study conducted by the University of Indonesia, an increase in gasoline prices would plunge 2.4 million more people into poverty. Finance Minister Agus Martowardojo recently increased the projected poverty rate for 2012 from 12.5 to 12.8 percent.  As a counter-measure, the government has promised 25 trillion rupiahs in direct help to poor households. Each household is to receive a monthly payment of 50,000 rupiahs ($5.45) for a total of nine months in addition to other aid such as rice and reduced ticket rates for public transportation. Critics accuse the government of introducing these measures to bribe the poor.

An Indonesian man sells petrol at a streetside stand

The rise in the price of gasoline is expected to create millions of new poor people
National Budget: Gasoline has been subsidized in Indonesia for over 20 years and the price for one liter there is currently below that of the international market price. Indonesian President Susilo Bambang Yudhoyono already came up against resistance in 2005 for adjusting gas prices. And a hike in gasoline prices is what caused the dictator Suharto to resign from office. “We agree that hiking the retail oil price is not a popular policy, but balancing the national budget and protecting people on low incomes from the price hike is important. We hope with better understanding of the people, this policy can be understood and accepted,” said Evita Legowo. Parliament is due to make a decision next week. If it sanctions the price hike, public support for the government is highly likely to decrease drastically. Protests have been announced for April 1 in 33 provinces.

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