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Indonesia's next leader, Widodo, faces party divided over fuel subsidies

Source: Reuters - Fri, 5 Sep 2014 07:09 GMT
Author: Reuters
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By Gayatri Suroyo and Kanupriya Kapoor

JAKARTA, Sept 5 (Reuters) - A plan by Indonesia's next leader to hike fuel prices this year faces opposition within his coalition, party officials said, stirring concern whether he will have the political support to take such a contentious step during his first weeks in office.

President-elect Joko Widodo, who takes office on Oct. 20, wants to fast-track a cut in fuel subsidies that are the main reason behind a current account deficit that is expected to exceed 3 percent of gross domestic product this year.

Fuel subsidies cost the government about $20 billion a year, or nearly a fifth of its budget, and economists say they mainly benefit the rich in southeast Asia's largest economy.

But raising fuel prices is a sensitive issue that typically sparks protests and contributed to the downfall of long-serving autocrat and then president Suharto in 1998.

"If we have other potential income, why should we increase the price?" Dolfie Palit, a lawmaker for Widodo's Indonesian Democratic Party-Struggle (PDI-P), told Reuters.

"For us, raising the fuel price is the last resort."

In July, Jusuf Kalla, the vice president-elect, told Reuters the new government's top priority would be to confront the fuel subsidy problem, and it was likely take action within its first 100 days in office.

Economists have mixed views on a fuel price hike this year, with opponents saying the resulting inflationary pressures could drive off investors.

"If the timing is not right, that could spark liquidity problems and investors could suddenly pull out their money and make liquidity even tighter," said Wisnu Wardana, Jakarta-based economist at Bank CIMB Niaga, adding that Widodo should wait until next year to raise fuel prices.

Widodo had hoped the outgoing government would raise fuel prices before the handover, due in October. But President Susilo Bambang Yudhoyono rejected the request last week, saying conditions were not right for such action.

The president does not need parliamentary approval to cut fuel subsidies, but Yudhoyono sought its support anyway, before raising fuel prices by an average of 33 percent last year.

PDI-P has regularly opposed fuel price hikes over the last decade as the main opposition to Yudhoyono, but has switched its policy after Widodo's election victory.

"Jokowi's commitment to professionalism and his technocratic approach has left some people feeling like he is not paying attention to political pressures," said a PDI-P insider who supports a fuel price hike.

"That upsets not just the opposition but also people within his own party," added the insider, who asked not to be identified because of the sensitivity of the issue.

PDI-P lawmaker Rieke Diah Pitaloka, who is opposed to a hike, said there were no instructions from party leaders to back an increase.

Widodo's transition team, which is in charge of advising on policy and potential cabinet ministers, has decided on five options on the fuel subsidy issues, one of its members said, but declined to discuss them in detail.

"There are options to raise the price and there are also options that don't involve raising the price," said Andi Widjajanto, one of the transition team's deputies.

"There might be a rise this year. There might be a rise next year."

Widodo could still have a trump card, however.

If he wants to get the support of the entire party for his fuel subsidy decision, Widodo will need the backing of PDI-P chairwoman and former president Megawati Sukarnoputri, who has supported a hike in prices before.

"If he has the support of Megawati, it won't be a problem. The party is a queendom and ... they will follow what she says," the PDI-P insider said. (Additional reporting by Yayat Supriatna; Writing by Randy Fabi; Editing by Clarence Fernandez)

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