[sustran] fwd: Fuel rises a blow for Gus Dur

[Paul Barter]

Here we go again...


The Weekend Australian newspaper
http://www.theaustralian.com.au/printpage/0,5942,2016857,00.html

Fuel rises a blow for Wahid
By Don Greenlees, Jakarta correspondent 
19may01

BATTLING to stave off a mid-year impeachment, Indonesian President
Abdurrahman Wahid faces a new test of his leadership after his cabinet was
forced to approve politically sensitive increases in fuel and electricity
prices to rein in a ballooning budget deficit.

In impoverished Indonesia, the planned increase of 30 per cent in fuel
prices and 20 per cent in electricity tariffs risks provoking a popular
backlash, coinciding with the parliamentary impeachment proceedings against
Mr Wahid.
But the cabinet, which approved the budget revisions late on Thursday, had
little choice in the decision with the deficit widening from 3.7 per cent of
gross domestic product targeted in the budget to an unsustainable 6 per
cent.

The International Monetary Fund has warned that bringing the deficit under
control is a pre-condition for the release of a $US400 million ($760
million) loan tranche put on hold last December.

The price increases will be brought about by cutting 6 trillion rupiah ($1.2
billion) from 66 trillion rupiah in fuel subsidies by the middle of June.

The national value added tax - the equivalent to Australian GST - will be
increased from 10 per cent to 12.5 per cent.

Following the cabinet meeting, economic ministers acknowledged the political
risks in the subsidy cuts, which are due to be put to parliament for
approval next week.

"To come to such figures and measures was not easy," said senior economy
minister Rizal Ramli.

"The implications are far-reaching."

The fears over the impact of the subsidy cuts are well-founded - previous
Jakarta governments have been forced to reverse similar decisions because of
public protests which spilled over into rioting. And the budget revisions
come amid a worsening economic outlook for Indonesia.

Only five months after the budget was framed, the Government estimates
economic growth will slow this year to between 3.2 per cent and 3.7 per cent
from the 5 per cent forecast in the budget.

Inflation forecasts have been revised upwards from 7.2 per cent to a
high-end estimate of 9.5 per cent. The new calculations assume a rupiah
exchange rate of 9600 to the US dollar, compared with the 7800 forecast in
January.

The efforts to cut the budget deficit have won IMF approval and will help
ensure the release of the delayed loan tranche. But sticking points remain
over a planned Indonesian bond issue and new laws regulating the central
bank.

News of the budget cuts gave little immediate support to the ailing rupiah,
which has been depressed by the continued uncertainty over Mr Wahid's fate.

Although the new budget settings will help keep the economic recovery on
track, they could heighten tensions in parliament and increase the pressure
on Mr Wahid's leadership.

Parliament is due to decide at the end of the month whether to seek a
special session of the supreme constitutional body, the People's
Consultative Assembly (MPR), which has the power to replace the president.

The politically controversial budget changes will unavoidably become
enmeshed in the intense politicking between the parliament and the
presidential palace over the special session.

© 2001 The Australian