Soaring prices hit Indonesia's poor

Fuel price rises will hit business as well as the poor

By Richard Galpin in Jakarta

The Indonesian Government has announced an average 30% increase in fuel prices after temporarily delaying the plan for fear of street violence.

The cost of medicine has already gone up and substantial increases to electricity and telephone charges are due to be implemented in July. The level of VAT is set to rise at the same time.

There have been violent clashes over employment issues

The government is desperately trying to reduce the budget deficit, which many fear will reach unmanageable levels unless revenue rises dramatically.

But those hardest hit by the price increases will be the millions of people living beneath or near the poverty line.

Just a few kilometres from the gleaming office blocks of central Jakarta lies one of the city's worst slums. Here, thousands of people live alongside a busy railway line.

Jakarta's poor

One resident, Satiman, has made his home in the middle of the track. His wife was lying down, blood trickling down her face - the result of a road accident.

There is nothing Satiman can do for her. The cost of medical treatment is way beyond his income. He earns less than a dollar on average a day, sifting through rubbish for things he can sell.

I've been told that the price of the hepatitis vaccination for my baby has gone up from 4,000 rupiah to 20,000 - we can't afford it

Young mother Ibu Dani

"I have lived here since I was small and the government has never done anything to help us," he said.

"It wouldn't even know what to do if we died. The government should have a policy to help us pay for medical treatment. I just want my wife to get better."

In the local medical clinic, there is also much concern about the sudden increase in the cost of medicine.

Ibu Dani has three children, including a 10-month-old baby girl who still needs basic vaccinations.

"The cost of the ticket just to enter this clinic has already doubled," she said. "And now I've been told that the price of the hepatitis vaccination for my baby has gone up from 4,000 rupiah to 20,000. It's too hard on us, this. We can't afford it."

Business closures

But it is not just those requiring medical treatment who are under pressure. Businesses also fear the 30% increase in the price of fuel.

At a factory producing tofu - an important source of protein for low-income groups - the cauldrons of boiling water are heated by kerosene burners.

The economic crisis of the past four years has already made the situation extremely difficult for the owner, Satam. But he says they may have to close down completely if fuel prices do go up.

Poltical instability has discouraged foreign investment

Already he knows of many other factories in the area which are now shut. The government's decision to impose the price hikes on fuel, electricity and telephone calls come in response to pressure from the International Monetary Fund.

John Dodsworth, the IMF representative in Jakarta, says it is vital to reduce the budget deficit.

"The problem with the deficit being at six or seven per cent of GDP is that you don't have any financing for this. The way the government has to finance it is to print money," he says.

"But what you then have is an intensification of the inflation rate, which is really another way in which governments tax the poor. So in fact you will have a much more adverse impact on the poor if you just allow the government to print money."

Mounting debts

The budget deficit has increased rapidly in recent months because of the fall in the value of the currency and the increase in interest rates.

It is seen by the public that the rich people in Indonesia are not really contributing appropriately to this burden

Economist Sri Mulyani

Indonesia has massive foreign and domestic debts. Government revenue is not enough to keep up with debt repayments and also maintain public spending at current levels.

But one reason why government revenues are so low is because 90% of the middle and upper classes who should be paying income tax are avoiding it.

The economist Sri Mulyani says that this is unacceptable.

"It is seen by the public that the rich people in Indonesia are not really contributing appropriately to this burden," he said.

"A lot of them can enjoy luxurious houses, cheap electricity and cheap gasolene prices for their luxury cars. The rich people in Indonesia should pay their contribution to the country."

The government is trying to increase tax revenue. But it is an uphill battle which will take years to bear fruit. In the meantime, Indonesia's poor will continue to be squeezed by the government as the economic crisis drags on.