Macroland

There is nothing more politically sensitive in Indonesia than raising the price of fuel. Price hiked have frequently sparked violent protests. Such protests brought an end to the rule of long-serving president Suharto in May 21,1998, after he hiked fuel prices by up to 70 percent in May 4 under pressure from the international monetary fund (IMF) as a condition of a US$43 billion bailout.. Riots and looting broke out on the streets in Jakarta, resulting in some 1200 deaths. In an attempts to mollify the angry public, the government subsequently revoked the hefty price increases and Mr Suharto resigned in May 21, 1998.

Subsidies on fuel began under the Sukarno era as a way to protect people from the effects of inflation.. By 1965, fuel subsidies alone absorbed 20 percent of the state's total revenue. Fuel subsidies acted as a buffer against rising living costs in a country where tens of millions of people still live on less than US 1 ($1.3) a day. The underlying rationale for subsidising fuel and other basic commodities was political. Mr Suharto believed that by ensuring price stability in basic necessities such as rice and kerosene, which is used for cooking by majority of Indonesians, he would achieve political stability. That system worked until the advent of the 1997 financial crisis when the collapse of the rupiah made it impossible for the government to sustain fuel subsidies. After Mr Suharto 's attempt to raise from to raise fuel prices sparked widespread roots which led to his downfall, his successors have been cautious about broaching the fuel subsidy issue - although cutting subsidies had been a necessity and fuel prices have been raised several times over the past 15 years, attracting significant protest each time.

Although many of the poorest Indonesians do not benefit directly from fuel subsidies, any hike in prices affects them as it drives up the prices of all items, Including basic necessities like food and clothing due to increased transport costs. The government has a longstanding fear that a price hike will push tens of millions of Indonesians below the poverty line stood at 28.3 million, or 11.25 percent of the total population, as of March 2014.they have a monthly income of below 300.000 rupiah ($33) per month.

Furthermore, pro poor advocate groups says the benefits of the government's proposed programmed using the funds saved from cut in duel so didoes will only flow to the poor later. They claim that the the poverty alleviation programmes look good on paper, they have historically been badly implemented and subject to graft the government officers. Thus convincing the country's poor, who depend on fuel subsidies to get by day-to-day, to take the hit now and to wait for benefits to materialise sometime in the future will be any president 's toughtest challenge.. Whole the economic rationale for slashing fuel subsidies is sound, politically it remains a very hard sell.

An increase in the price of a litre of petrol to make it even fractionally closer to the international market level would have to be accompanied by cash handout - similar to what Dr Susilo Bambang Yudoyono 's government gave in 2005 and 2008 - which were viewed as effective.

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