Sat, Sep 03, 2005 - Page 5 News List

High oil prices may undo Yudhoyono's `magic touch'

AP , JAKARTA

In the 11 months since he took office, Indonesia's President Susilo Bambang Yudhoyono often seemed to have a magic touch.

He successfully handled the massive tsunami emergency in Aceh, used the carnage to push through a peace deal with the province's separatist rebels, and has followed through on promises to fight endemic corruption in the country.

But skyrocketing oil prices and a plunge in the currency's value has triggered the first significant public disquiet against Yudhoyono and finally given his opponents issues that are gaining traction.

Enemies who have had little to criticize Yudhoyono for say he has done too little, too slowly to respond to the woes and warn the country could be headed toward a full-fledged economic crisis.

The rupiah has fallen 11 percent this year against the US dollar to its lowest level in four years, and fuel subsidies that keep gasoline prices low while the world oil prices soar are bleeding government coffers.

Yudhoyono has acknowledged that the subsidies must be reduced, but top-level meetings this week produced no concrete measures to address the economic problems.

A recent survey found that 44 percent of Indonesians are unhappy with the government's economic management, and analysts are laying the blame directly at Yudhoyono's feet.

"Everything the president has done so far has turned out to be a dud," the Jakarta Post, the country's main English-language daily, said this week in an unusually blunt editorial. "Despite his very presidential public persona, we must remind the president that leadership is action."

In a speech on Wednesday, Yudhoyono promised that subsidies that keep fuel prices at about US$0.24 a liter would be cut. But he failed to set a timetable, saying only that the cuts would come later this year after policies were in place to protect the poor from price rises.

The currency and stock markets reacted poorly. Markets were closed yesterday for a national holiday.

"The speech by President Yudhoyono was disappointing," JP Morgan said in a statement. "It failed to deliver any sort of credible message on cutting back fiscal fuel subsidies."

Standard & Poor's credit analyst Agost Benard said Friday that for the past year the government's response to falls in the rupiah's value "have tended to be slow, reactive, and incremental" and warned they could lead to broader economic problems.

"The inability to craft and implement appropriate policy measures leaves fiscal and external balances exposed," Benard said. "This could ultimately threaten to undo the macroeconomic stability achieved in recent years."

Yudhoyono's spokesman, Andi Alfian Mallarangeng, insisted yesterday his boss had "shown good leadership" this week and welcomed the criticism as part of the country's transition to democracy.

"He is a leader of [210] million people," Mallarangeng said. "He has to make sure reducing the subsidy will not hurt them. He will increase fuel prices but he just wants to make sure they compensation scheme is ready."

Yudhoyono swept to power last October with promises to revive the economy and end corruption.

His hands-on approach and clean image turned the staid former army general into one of Indonesia's most popular presidents.

Unlike predecessors the aloof Megawati Sukarnoputri and erratic Abdurrahman Wahid, Yudhoyono showed himself to be politically astute -- mingling with Indonesia's masses of poor and responding quickly to Asian tsunami that killed 131,000 people in Aceh with comforting words and visits to the province.

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