Aditya Suharmoko, The Jakarta Post, Jakarta
Business players have demanded the government immediately provide certainty on its fiscal policy as they struggle to formulate business plans amid global market pressures.
Speaking at a discussion held by the central bank Wednesday, Indonesian Employers Association (Apindo) chairman Sofyan Wanandi said it was crucial the government be concerned about rising global oil prices that may stretch fuel subsidies.
"The government better not make only promises, so we can be certain in planning our businesses," Sofyan said.
Sofyan said if the government could not be firm in determining its fiscal policy, businesses might collapse and lead to increasing unemployment.
"Small and medium businesses have closed their enterprises, while in the (1997) crisis they were the ones that held the economy together," he said.
After calculating the rise in global oil prices, the government earlier this month wrapped up the revision of the 2008 state budget -- normally carried out at the beginning of the second semester.
In the revised budget, the government estimated the Indonesian Crude Price (ICP) -- the country's benchmark oil price -- at US$95 a barrel, up from $60 a barrel in the first 2008 state budget.
Under the new oil price assumption, the planned fuel subsidies rose from Rp 42 trillion ($4.5 billion) to Rp 126.82 trillion, about 12 percent of the government's Rp 987.48 trillion total spending.
A provision in the budget says the government is allowed under the law to cut fuel subsidies if the ICP price exceeds an average of $100 a barrel and the total annual consumption is estimated to go beyond 37 million kiloliters.
The average ICP price in the fist quarter already stood at $103.10 a barrel. On Wednesday, the crude oil price for June delivery was priced at $117.12 a barrel in New York, according to Bloomberg.
Despite the growing pressure on the state budget, the government has yet to decide whether it will lift the subsidies and raise fuel prices.
Indonesian Chamber of Commerce and Industry (Kadin) chairman M.S. Hidayat said the market was now evaluating all the assumptions stated in the revised budget.
"The main problem is the rise in oil prices," said Hidayat.
However, he said the government had promised to be serious in calculating the impact of oil prices on businesses.
The World Bank has also criticized the government for continuing the subsidies despite evidence they only benefit car users with higher monthly spending capacities.
WB country director Joachim von Amsberg said the fuel subsidy had been poorly targeted, would only promote consumption and would not help the poor, adding that he questioned the subsidy figure that was two-and-a-half times higher than allocations for investment in social development.
The Finance Minister told reporters after a meeting with the central bank that Indonesia could still withstand external shocks coming from the rise in global oil and commodity prices.
Finance Ministry head of fiscal policy (BKF) Anggito Abimanyu said the government had conducted simulations to prepare for a worst-case scenario if the oil prices kept increasing.
"We also have a team whose job is mitigating fiscal risks," said Anggito.
He said the government had a policy to cap fuel subsidies at a certain amount so the state budget would not be overburdened by subsidies.