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Indonesia backs off plans to hike price of gas after protests

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The government last raised fuel prices in 2008, though it dropped them again in the run up to elections the following year. The protests at that time were less dramatic because fuel price hikes had more support then, say analysts.The problem now is that people are being forced to sacrifice without a guarantee that politicians won’t use the savings to fill their own pockets.

“There were protests then, as always, but not like this,” says Chatib Basri, vice chairman of Indonesia’s National Economic Committee. “Political trust is low because of scandals related to the ruling party.”

Despite winning a landslide election in 2009 by promising to eradicate graft, President Susilo Bambang Yudhoyono has been battling widespread corruption allegations against his Democrat Party. Meanwhile, the country’s economy has been growing at an average of more than 6 percent, but a lack of infrastructure and bureaucratic bottlenecks still pose challenges to investors.

Mr. Basri said the government should have raised the price of fuel last year, when global prices first started rising.

Now the decision to delay the price hike could hurt the country’s ability to obtain a coveted credit boost from Standard & Poor’s, the last of the big three ratings agencies to return the country’s credit rating to investment grade for the first time since the 1998 Asian Financial Crisis.

Indonesia is not the only country grappling with petrol prices – Malaysia is also debating price hikes, while China has already implemented them.

But protests here set off alarm bells among politicians who remember how a cut to blanket subsidies in 1998 sparked riots that eventually forced former strongman Suharto from power.

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