Indonesia was rocked Thursday with protests after the government said they will vote to raise fuel prices by 33%. There have been reports that some of the protests across the country are violent. Politicians were concerned with the possibility of tens of thousands of angry protestors raiding the streets, blocking traffic, looting, fighting police, etc; as it turns out they are partially right. There are reports of one group that has fought police and looted some stores in the Makassar area on the island of Sulawesi. Meanwhile, on the island of Maluku, protestors have blocked an airport and airlines have been forced to fly to other airports.
The vote for the fuel prices is set to go on Friday and many student and union groups have said that the protests have only begun and they will intensify tomorrow with the vote. The president has made an appearance in an attempt to cool the chaos. He said that if fuel prices do not increase that it could stall the economy and throw people out of jobs.
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It is common knowledge that Indonesia has one of the lowest gasoline prices in the world. They are paying $2 a gallon (in US dollars) mostly due to government subsidies. Unfortunately, oil prices have surged while Indonesia’s oil production has been reduced. On top of that, the bill for the country’s oil subsidies has surged to $15 billion a year or 15% of the nation’s budget.
Economists have long warned that if the country doesn’t raise its fuel prices that they could face a budget crisis because oil is beginning to take over a large part of the budget and the country is forced to cut spending to other vital areas.
To keep things in perspective, while you may be thinking that Indonesians are ridiculous for complaining for $2 gallon gas, remember that over 100 million Indonesians live on less than $2 a day. Americans could not live off of $2 a day but certainly we can relate with the financial burden that we all are experiencing at the pump.
In addition, economists are also saying that inflation could reach 8% year on year compared to just 4% right now. That is a scary threat considering it could hurt the country’s economy greatly.
The Indonesian government is in a tight spot. On one side the citizens can not afford to pay much more at the pump but inflation is creeping in as well as a potential budget crisis. I see no other option but to raise fuel prices, unfortunately.