03.04.2012
It is still two long years before the 2014 Indonesian elections, but President Susilo Bambang Yudhoyono’s ruling coalition can no longer be deemed an effective government capable of taking hard decisions.
The refusal of coalition partners Golkar and the Justice and Prosperity Party (PKS) to support a 33 percent increase in the prices of subsidized petrol and diesel has dealt a mortal blow to Yudhoyono’s hopes of ending his final term on a high note.
Granted, there is an optional measure authorizing an adjustment at the end of six months if the Indonesian crude price (ICP) averages 15 per cent above the US$105-a-barrel assumption in the revised 2012 budget.
But this cannot mask the worst defeat of Yudhoyono’s eight-year presidency. Government planners can also take little comfort from the fact that the ICP averaged US$119 for the first two months of this year, just below the trigger point.
The last-minute desertions left the government well short of the majority needed to approve the increase, which would have eased the heavy subsidy burden on the budget and freed more money for vital infrastructure spending.
Prior to the vote, Indonesian and international economists had applauded the long-anticipated move, with some saying energy subsidies should have been removed long ago to bring Indonesia into the ranks of the world’s most competitive economies. Now Indonesia will be perceived as a rapidly developing ‘wannabe’ that does not have the maturity to take bold — and difficult — steps to secure the country’s economic future.
The critical issue here is not about reacting to fluctuations in the world oil price, but rather, about putting an end to the wasteful use of energy — and to fuel and electricity subsidies that gobble up 20 per cent of government spending.
The PKS has always been a troublesome and often controversial partner, but with this perceived act of treachery, Golkar chairman and presidential hopeful Aburizal Bakrie clearly sees an opportunity to boost his sagging popularity. Sources close to the Golkar leadership say the decision was made by Bakrie himself and not through any formal mechanism in Indonesia’s second-biggest party, which served as former president Suharto’s political vehicle throughout his 32-year rule.
“Decision-making has become increasingly centralised and personalized,” one senior party member told The Straits Times. “Normally, Bakrie makes up his mind about something and then works out with those around him how to get it out.”
With Yudhoyono having just returned from the Nuclear Security Summit in Seoul, Cabinet sources say many of his ministers and other senior officials had simply no inkling the ground was moving under the administration’s feet.
Golkar’s argument that the time is not right for a price rise hardly bears scrutiny. In fact if there was ever a time to reduce subsidies, it is now, not only because of the high oil price but also because growth and consumer confidence are the best they have been in a decade.
There are claims that Bakrie was angry over a senior lawmaker in Yudhoyono’s Democrat Party misrepresenting his position on the price hike. But withdrawing support for the hikes in a fit of pique hardly makes him presidential material.
While some demonstrations were violent, particularly in the South Sulawesi capital of Makassar, they were generally small and scattered. In fact, despite Yudhoyono’s dithering over the issue, most Indonesians seemed resigned to the inevitable.
A former chief economic minister himself, Bakrie is well aware of what is at stake, with fuel subsidies alone soaring from Rp 123.59 trillion ($13.5 billion) to Rp 137.3 trillion in the revised 2012 budget.
After all, he pushed a reluctant Yudhoyono hard for a sharp petrol price hike in 2005, and backed a similar increase in 2008 — one which the President then inexplicably rowed back from when the oil market weakened.
So what is so different now? Simple: The elections are a lot closer. Bakrie must be concerned that while Golkar looks likely to topple the Democrats as the biggest party in the 2014 elections, his own popularity continues to lag in the polls.
This is also not the first time the president has been let down by the Democrat Party leadership. Already beset by graft allegations, senior party men simply lack the nous and the experience to deal with a powerful partner that knows every trick in the book.
But mostly Yudhoyono has himself to blame for not showing the sort of firm leadership Indonesia needs if it is to build on an economic momentum that sometimes seems to have been created almost by default.
The President’s political problems began with his failure to own the 2008 Bank Century bailout and have continued since then. Indeed, the latest setback could well have been avoided if he had shown the sort of courage that has always been strangely lacking.
Unlike this year’s legislation, the 2011 Budget Law allowed the government to increase the petrol price without Parliament’s say-so, once the Indonesian crude price had gone 5 per cent above the then US$90-a-barrel assumption.
But the President and his advisers rejected three requests from Finance Minister Agus Martowardojo last December to use that window. It may well have caused ructions in the coalition, but it would not have left him as he is now — swinging in the wind.
The refusal of coalition partners Golkar and the Justice and Prosperity Party (PKS) to support a 33 percent increase in the prices of subsidized petrol and diesel has dealt a mortal blow to Yudhoyono’s hopes of ending his final term on a high note.
Granted, there is an optional measure authorizing an adjustment at the end of six months if the Indonesian crude price (ICP) averages 15 per cent above the US$105-a-barrel assumption in the revised 2012 budget.
But this cannot mask the worst defeat of Yudhoyono’s eight-year presidency. Government planners can also take little comfort from the fact that the ICP averaged US$119 for the first two months of this year, just below the trigger point.
The last-minute desertions left the government well short of the majority needed to approve the increase, which would have eased the heavy subsidy burden on the budget and freed more money for vital infrastructure spending.
Prior to the vote, Indonesian and international economists had applauded the long-anticipated move, with some saying energy subsidies should have been removed long ago to bring Indonesia into the ranks of the world’s most competitive economies. Now Indonesia will be perceived as a rapidly developing ‘wannabe’ that does not have the maturity to take bold — and difficult — steps to secure the country’s economic future.
The critical issue here is not about reacting to fluctuations in the world oil price, but rather, about putting an end to the wasteful use of energy — and to fuel and electricity subsidies that gobble up 20 per cent of government spending.
The PKS has always been a troublesome and often controversial partner, but with this perceived act of treachery, Golkar chairman and presidential hopeful Aburizal Bakrie clearly sees an opportunity to boost his sagging popularity. Sources close to the Golkar leadership say the decision was made by Bakrie himself and not through any formal mechanism in Indonesia’s second-biggest party, which served as former president Suharto’s political vehicle throughout his 32-year rule.
“Decision-making has become increasingly centralised and personalized,” one senior party member told The Straits Times. “Normally, Bakrie makes up his mind about something and then works out with those around him how to get it out.”
With Yudhoyono having just returned from the Nuclear Security Summit in Seoul, Cabinet sources say many of his ministers and other senior officials had simply no inkling the ground was moving under the administration’s feet.
Golkar’s argument that the time is not right for a price rise hardly bears scrutiny. In fact if there was ever a time to reduce subsidies, it is now, not only because of the high oil price but also because growth and consumer confidence are the best they have been in a decade.
There are claims that Bakrie was angry over a senior lawmaker in Yudhoyono’s Democrat Party misrepresenting his position on the price hike. But withdrawing support for the hikes in a fit of pique hardly makes him presidential material.
While some demonstrations were violent, particularly in the South Sulawesi capital of Makassar, they were generally small and scattered. In fact, despite Yudhoyono’s dithering over the issue, most Indonesians seemed resigned to the inevitable.
A former chief economic minister himself, Bakrie is well aware of what is at stake, with fuel subsidies alone soaring from Rp 123.59 trillion ($13.5 billion) to Rp 137.3 trillion in the revised 2012 budget.
After all, he pushed a reluctant Yudhoyono hard for a sharp petrol price hike in 2005, and backed a similar increase in 2008 — one which the President then inexplicably rowed back from when the oil market weakened.
So what is so different now? Simple: The elections are a lot closer. Bakrie must be concerned that while Golkar looks likely to topple the Democrats as the biggest party in the 2014 elections, his own popularity continues to lag in the polls.
This is also not the first time the president has been let down by the Democrat Party leadership. Already beset by graft allegations, senior party men simply lack the nous and the experience to deal with a powerful partner that knows every trick in the book.
But mostly Yudhoyono has himself to blame for not showing the sort of firm leadership Indonesia needs if it is to build on an economic momentum that sometimes seems to have been created almost by default.
The President’s political problems began with his failure to own the 2008 Bank Century bailout and have continued since then. Indeed, the latest setback could well have been avoided if he had shown the sort of courage that has always been strangely lacking.
Unlike this year’s legislation, the 2011 Budget Law allowed the government to increase the petrol price without Parliament’s say-so, once the Indonesian crude price had gone 5 per cent above the then US$90-a-barrel assumption.
But the President and his advisers rejected three requests from Finance Minister Agus Martowardojo last December to use that window. It may well have caused ructions in the coalition, but it would not have left him as he is now — swinging in the wind.
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