Gary LaMoshi, Denpasar – On New Year's Eve, I pulled into my local Pertamina station. While waiting for my tank to fill, I asked the attendant about gasoline prices for January; for the past year, the Indonesian government has adjusted the cost of fuel on a monthly basis and usually announces the new prices a few days in advance. "Belum tahu," he replied; he didn't know yet.

At the same time, just a couple of kilometers away, President Megawati Sukarnoputri and her cabinet were at the Grand Bali Beach Hotel for a book launching party for Indonesia's first husband Taufik Kiemas. The launch coincided with Taufik's 60th birthday, and a highlight of the day-long festivities was a gigantic cake, of which Megawati enjoyed a presidentially proportioned slice.

On New Year's Day, the government announced that fuel prices would rise 22 percent, along with 15 percent hikes in telephone charges and the first of quarterly 6 percent spikes in electricity rates. Now we know how to say to "let them eat cake" in Bahasa Indonesia.

The price hikes have evoked nationwide protests, now in their second week. Megawati and Vice President Hamzah Haz, an economist who understandably prefers acting as Indonesia's chief mullah to bait the United States, are the principal objects of scorn. Since police have promised arrest to those defacing state symbols, including burning the leaders in effigy, protesters have been more circumspect, assuring that they're not trying to topple the regime. That's wise, given the alternatives; legislators that approved the price hikes last year have joined the howling masses and called for hearings.

The demonstrations, nevertheless, constitute the most serious threat to Megawati's 18-month-old regime. The presence of middle-class and business groups among the usual suspects echoes the coalition that brought down Philippine leader Joseph Estrada two years ago, but the Indonesian military, unlike its Philippine counterpart, has shown no interest. The crassness of the government's sudden announcement and its timing also make it easy for Indonesia's rabble-rousers to connect the dots about what really ails Indonesia's economy. Too easy.

Blame the tycoons

During the waning days of 2002, the administration signed off on implementing the deal made by B J Habibie's government to drop criminal charges against tycoons who abused Rp144.5 trillion (US$16.4 billion) in emergency rescue loans for their banks to speculate against the rupiah and worse.

The original release and discharge (R&D) agreement called for the banks' parent conglomerates to repay the government to escape prosecution. None have. The cooperative ones have made token repayments of dud assets, worth pennies on the dollar, to gain their immunity. Last week, a court found that the R&D deal's implementation precluded a "guilty" verdict against one banker.

Without the threat of prosecution and jail, remote given the "for sale" signs on Indonesian judges, any chance of getting more than nominal repayments and cooperation from tycoons vanishes. Moreover, R&D smoothes the well-traveled road for conglomerates to repurchase their pledged assets at a fraction of the value of the repayment credits they received from the government.

There is much talk about "people's sense of justice" being offended by the price hikes so closely following R&D implementation. There's a belated realization that the state's loan losses through corruption are connected to the budget deficit and the sputtering economy. The two largest Muslim organizations have called on the government to jail corrupt figures, though neither mentioned the top thief, former president Suharto. Of course, the government can argue that it always has and will continue to pursue vigorously all criminals, except, of course, those covered by R&D.

Blame the IMF

Many protesters and authors of negative articles flooding the local press blame Megawati for doing the International Monetary Fund's (IMF) bidding. In fact, the IMF's rescue package urges that Indonesia cut its budget deficit and reduce its mammoth subsidies to encourage more rational investment. The fuel price hikes alone will knock Rp30 trillion off this year's budget gap.

Megawati's government is happy to let the IMF take the blame. That line of thinking conveniently transfers the guilt to foreigners, outside the government's control. Better to be painted as the pawn of Western financiers than the protector of thieves.

While the price hikes have their roots in IMF-directed orthodoxy – probably not the best prescription for the Indonesian economy at this time – the protesters miss a key point: eliminating these subsidies makes sense. Fuel and utility price hikes resonate throughout the entire economy through higher transport and production costs, but the direct hits fall on the relatively rich. Overall, few Indonesians own vehicles, fewer than 5 percent have telephones, and 45 percent don't have electricity. The urban middle class that took the hardest lumps in the 1997 crisis will bear the brunt of this assault, not the poor masses the protesters purport to represent.

Cushioning the blow for the poorest, the government also announced a Rp5 trillion relief program, including subsidized rice rations. The cost of kerosene, which most poor use for cooking, also remains heavily subsidized.

In the wake of the protests came further announcements last week of an assistance package for small businesses, clumsily timed to head off their participation in a mass protest planned for Thursday in Jakarta (it fizzled, drawing far fewer than its 25,000 anticipated participants), and a further export industry stimulus plan.

Blame the government

The IMF program may be a problem and the failure to jail the corrupt, past and present, certainly is. So is the political class's blatant disregard for appearances, partying down in Bali for the new year and handing regular folks the hangover.

Megawati's notorious reluctance to speak publicly on key issues makes the situation worse. Even when she has a forum, such as her New Year's address on national television just after the stroke of midnight in Bali, she spouts a few cliches and takes a seat. She belatedly came out of her shell on Sunday, 10 days after the price hikes were announced, to tell a party gathering that the subsidies led to piling up foreign debt (curse you, IMF) and that ending them will help the economy in the long run. Normally, her words are revealed only through participants in meetings with her. Merdeka Palace doesn't even have an official spokesperson.

The price hikes would have been far more palatable and understandable if government ministers had interrupted their holiday in Bali to present them as part of a coherent economic strategy. Along with new incentives for business and anti-poverty funding, the ministers would explain how these moves were part of a program to hasten Indonesia's recovery from five years (and counting) of economic crisis.

The real trouble is that the government doesn't have a coherent economic strategy to present. The leadership can toast itself on a number of successes in 2002: the rupiah didn't collapse after the Bali bombings; the Jakarta stock exchange had a better year than Wall Street; interest rates fell from over 16 percent to 12.75 percent; and inflation barely crossed into double digits.

None of those wins, however, moved Indonesia any closer to meaningful recovery, which requires, above all, putting the estimated 30 million unemployed to work. It also requires ending the corruption in business and government that chokes off opportunities for all while benefiting a favored handful (most of whom could be found in Bali over New Year's). Investment figures for 2002, along with yet another decline in foreign capital, featured a fall from internal sources. In other words, even Indonesians don't want to invest in Indonesia any more.

Formulating an economic strategy for Indonesia is hard. Cutting government subsidies is easy, and it keeps people talking about the wrong things. Maybe Megawati isn't as stupid as people think.