Indonesia Increases Fuel Prices, Violence Follows

25 June 2001 00:00  [Source: ICB Americas]

Despite unrest in Indonesia, prompted by a government decision to raise state-set fuel prices earlier this month, ExxonMobil Oil Indonesia Corp. announced last week that it would restart operations at its Aceh plant in Indonesia, which had been shut down since March. The company had ceased operations at the gas fields and liquefied-natural-gas processing facility due to ongoing violence from a guerrilla separatist war. ExxonMobil is proceeding with plans to restart the facility in July despite additional public outrage violence to the price hike.

On June 13th, the Indonesian government announced that it would raise state-set fuel prices by 30 percent in an effort to curb its growing deficit. That decision sparked violent demonstrations and led to a one-day postponement of the hike, which went into effect June 15.

The hike results from a budget revision that came on the heels of the Indonesian rupiah's drop in value this past March, coupled with rising interest rates. On June 13, the Budget Committee of the Indonesian Parlia-ment approved a revision that aimed to halt the budget deficit at 3.7 percent of gross domestic product, amid fears that the deficit might grow to a crippling 6 percent. Cuts in fuel subsidies within the revision directly necessitated the 30 percent jump.

Tangible tension followed the June 15 announcement in Jakarta, the nation's capitol, although the city remained peaceful for most of the weekend. In Badung, however, where many of the previous few days' skirmishes took place, police used tear gas to disperse about 6,000 protesters. By June 17, the anger exhibited in Badung had spread, and numerous physical confrontations between demonstrators and authorities erupted. Strikes were staged in four cities on Sulawesi Island, while protests en- gulfed the is-lands of Java and Sumatra. Numerous roadways were re-ported blocked and petroleum supplies were looted and vandalized.

The most dramatic clashes occurred on college campuses in Jakarta. Also, public and private bus drivers throughout Indonesia walked off the job due to concerns over escalating gasoline and diesel fuel costs. The government agreed to pay a $21 million subsidy to bus operators over the next six months to minimize the impact of the cost escalation.

Despite the recent unrest, Exxon-Mobil Oil Indonesia announced on June 18 that it would restart operations at its Aceh plant in Indonesia, which has been shut down since March due to violence. The company ceased operations at the gas fields and liquefied-natural-gas processing facility after a guerrilla separatist war over the independence of a northern tip of Sumatra directly imperiled its workers. The war has been an ongoing problem in Indonesia and has continued to claim casualties as recently as mid-June, but the company says that security is sufficient for its employees to return. Maintenance work has already begin at the Aceh plant, which is scheduled to be back on line on July 4. More than 2,000 military personnel will safeguard the reopened site.

ExxonMobil had no comment at press time regarding the Indonesian fuel cost increase. However, although the Indonesian government says that it expected a strong public outcry, many observers expect that the recent unrest could potentially unseat Indonesian leaders. Indonesia's President Abdur-rahman Wahid, the nation's first democratically elected leader, is suffering from all-time low popularity and may face impeachment this summer over what his critics say is gross mishandling of the nation's economy. In recent months, the International Monetary Fund (IMF) has refused to lend any capital to Indonesia. The Wahid administration says that the price hike is a move toward repairing its relations with the IMF, although observers say it also provides ammunition for opponents of the Wahid administration.

As for future unrest, Purnomo Yusgiantoro, the Minister of Energy & Mineral Resources, blames the violence on provocateurs with a specific agenda, adding that "intelligence reports" predict no serious disturbances.

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