Indonesia - Indonesia's poor left in limbo

Opponents of the postponed plan to raise fuel prices said they were simply defending the interests of the poor, but a week after the hike was put off, the poor are reeling from the delay. Food suppliers and wholesalers who were expecting higher transport costs starting Sunday have raised their prices anyway.

Also, the fierce political opposition to cutting fuel subsidies that saw the government postpone the price hike left the bottom third of Indonesia's households without the monthly handouts of 150,000 rupiah (US$16) they would have gotten for nine months to cover inflation had the increase been implemented.

In a report yesterday making the case for cutting fuel subsidies, the World Bank said such temporary cash handouts play an invaluable role in helping poor families cope with rising prices. Lower fuel subsidies, the bank said, allow for limited state resources to be distributed more fairly.

And targeted cash handouts, its economists added, help ensure that vulnerable families do not cut back on food or their children's education, trade-offs that would affect their health and future earnings potential.

The worry is that such adverse decisions are already being made.

Madam Murni, a grocer at a Jakarta wet market, told The Straits Times: "My customers are cutting down on staples like rice, onions and chillies because the prices have gone up."

The price of 1kg of rice has risen from 7,000 rupiah to 7,500 rupiah, while 1 kg of sugar now costs 12,000 rupiah, up from 11,000 rupiah.

Food inflation, traditionally low in March due to it being the harvest season, hit 4 per cent last month.

"Prices of things tend to be rigid. Once they go up, it is very difficult to see them come down," said Dr Fadhil Hassan of the Institute for Development of Economics and Finance.

And few expect prices to go down anytime soon.

Parliament approved a hike if the average Indonesia crude price rises 15 per cent above the assumed $105 a barrel over a six-month period, a threshold likely to be exceeded in the next few months should world oil prices stay high.

But many wonder whether Jakarta will have the political will to go ahead with a hike in July, as it coincides with the start of the school year, the fasting month of Ramadan, as well as a small harvest, all times when household spending rises.

The World Bank noted that households receiving such handouts when fuel prices were last raised in 2008 "removed their children from labour at increased rates".

It said the cash helped families continue getting the nutrition they needed, kept children in school, but, importantly, was not generous enough to make the poor lazy as critics had suggested.

Indonesian Chamber of Commerce and Industry's vice-chairman Peter Gontha told foreign correspondents yesterday that the government must continue explaining the necessity of subsidy cuts to stem the politicisation of the issue. Indonesia fuel prices are among the world's lowest, he added.

The Finance Ministry is still taking out TV ads to convince people that the cuts will see funds being channelled to those who need the money more.

Professor Suahasil Nazara, head of the University of Indonesia's economics department, felt a hike sooner rather than later would benefit the least well-off most. "If this uncertainty goes on, the poor will have to cope by themselves,' he said. 'Who are we protecting by keeping fuel prices intact?"

Zubaidah Nazeer & Zakir Hussain

The Straits Times

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