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Fuel Hike Fallout No Threat to Megawati
January 23, 2002
Summary
The Indonesian government raised fuel prices Jan. 17. The move -- a necessary one that will help Indonesia's long-term economic outlook -- has sparked some opposition. But President Megawati Sukarnoputri still has the political strength to survive the criticism.
Analysis
The Indonesian government pegged most fuel prices to those of the world market on Jan. 17, a move that raised prices by an average of 22 percent. Despite some criticism, leaders hope fuel hikes will loosen constraints on the national budget and help reduce corruption.
Fuel price hikes have proven politically detrimental to several other Asian leaders, including former Indonesian presidents Suharto and Abdurrahman Wahid. Megawati, however, still has enough security to impose such a change without risking her position. The move, which will help the nation's economy in the long term, also will please international observers, lending institutions and possibly investors who have so far been unimpressed with the president's performance.
Indonesia's economy has not recovered from the Asian economic crisis of 1997. The flagging economies of Jakarta's main export destinations -- Japan, the United States, Singapore and South Korea -- have only worsened the situation. With endemic corruption and domestic discontent keeping investor confidence low, Megawati has opted for politically risky economic changes to boost international confidence.
The fuel price increase stems from Jakarta's decision to bow to the International Monetary Fund, which has repeatedly demanded that it lower fuel subsidies. The government's 2002 budget allocates almost $3 billion in fuel subsidies, a decrease from $5 billion in 2001, according to the Jakarta Post.
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Fuel Hike Fallout No Threat to Megawati . . .