Mon, Apr 02, 2012 - Page 10 News List

Emerging Asia struggles to cut soaring fuel subsidies


Weeks of protests across Indonesia have thwarted a government plan for an immediate fuel price hike, the latest failure of an Asian administration to wean its country off costly subsidies.

Emerging nations in Asia such as Indonesia and Malaysia have struggled to keep fuel prices low as they watch their spending on subsidies balloon in line with global oil prices soaring above US$100 a barrel.

Indonesia’s parliament was widely expected on Friday to approve the hike — from 4,500 rupiah (US$0.49) a liter to 6,000 rupiah, but after weeks of protests, sometimes violent, parliament rejected any price rises “in the near future.”

Indonesian President Susilo Bambang Yudhoyono had hoped to implement the rise yesterday, but parliament instead agreed to a -watered-down law that would allow hikes in the longer term if global prices rose significantly higher.

Analysts said that low fuel costs, which also keep down the price of everyday needs, are one of few financial breaks awarded to the lower and middle classes in emerging Asian nations.

Wahid Institute director Ahmad Suaedy said Indonesians, the majority of whom live on less than US$2 a day, were fed up with a corrupt government that spends its budget irresponsibly.

“I think Indonesians would be open to the price rise if they were assured the government was going to spend the money on something constructive, like infrastructure and education,” Suaedy said.

Fuel subsidies ate up about US$14 billion, or 11 percent, of Indonesia’s state budget last year — more than what the government spent on education and health combined, which stood at US$9 billion and US$1.4 billion respectively.

Governments around the region, including India, Sri Lanka and the Philippines, have all experienced public pressure to maintain high subsidies.

In 1998, a fuel price rise in Indonesia helped trigger student riots that toppled the 32-year -Suharto dictatorship.

Ten years later, the government hiked the fuel price by one-third, but cut it back again in 2009 ahead of a presidential election.

In Malaysia, street protests were brutally quashed in 2008 following an oil subsidy cut, after which the coalition lost a third of parliamentary seats and control of five states to a resurgent opposition.

The Malaysian Domestic Trade, Cooperatives and Consumerism Ministry reaffirmed recently the government would not hike subsidized fuel prices. The Malaysian government spent about 20 billion ringgit (US$6.5 billion) on gas subsidies last year, almost double what it spent in 2010.

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