Fuel price hike to have little impact on inflation: BI<\/p>\n
Urip Hudiono, The Jakarta Post, Jakarta<\/p>\n
A hike in domestic fuel prices next year -- if carefully planned
\nand carried out -- will have only a limited effect on the
\ninflation rate, Bank Indonesia has said.<\/p>\n
\"Inflation will, of course, rise when the hike is made, but it
\nwill only be temporarily and will likely not continue over the
\nfollowing months,\" central bank Governor Burhanuddin Abdullah
\nsaid on Thursday.<\/p>\n
Bank Indonesia has suggested several schemes to the government
\non the fuel price hike, including the percentage it should be
\nraised, so as not to affect inflation significantly.<\/p>\n
\"We have sent our recommendations for the government to
\nconsider, and the final say also lies with them,\" Burhanuddin
\nsaid.<\/p>\n
Minister of Finance Yusuf Anwar said on Wednesday that the
\ngovernment would raise fuel prices next year to reduce fuel
\nsubsidy costs, which was increasing amid the current surge in
\nglobal oil prices.<\/p>\n
The soaring global price of oil has been a huge burden to the
\ncash-strapped government, which was forced to raise the fuel
\nsubsidy this year to about Rp 59.3 trillion (US$6.5 billion) from
\nan original budget of Rp 14.5 trillion.<\/p>\n
As a result, the 2004 budget deficit is expected to widen to
\nabout 1.5 percent of gross domestic product (GDP), compared to
\nthe initial target of 1.3 percent of GDP. The greater deficit
\nwill prompt the government to sell more state assets and increase
\nits tax revenue target.<\/p>\n
A rise in fuel prices affects inflation, as it pushes
\nproduction, distribution and transportation costs.<\/p>\n
According to the World Bank, however, the long-running
\nrelationship between fuel prices and overall inflation rate
\nsuggests that a 10 percent increase in fuel prices would roughly
\nbe equivalent to 0.6 percent of overall inflation rate.<\/p>\n
Bank Indonesia has projected that inflation next year would be
\naround 6.5 percent, about the same with the 2004 full-year
\ninflation target.<\/p>\n
A mild inflation environment is crucial to allow the central
\nbank to further cut down its interest rate and make bank loans
\nmore affordable to companies seeking to finance investment plans,
\nwhile easing the burden of the government in repaying its huge
\ndomestic public debts.<\/p>\n
A surge in domestic prices could also cause social and
\npolitical unrest, as it would make life more expensive for the
\npeople.<\/p>\n
In its last auction on Wednesday, the central bank managed to
\nlower the benchmark interest rate on a single Bank Indonesia
\npromissory note (SBI) to 7.41 percent to 7.42 percent.<\/p>\n
Elsewhere, Burhanuddin said a decision to retain current fuel
\nprices and the expensive fuel subsidy could affect the country's
\nforeign exchange reserves.<\/p>\n
\"We have to bear in mind that Indonesia is already a net
\nimporter of oil, although we still make a revenue from exporting
\ngas,\" he said, adding that the government spent between $800
\nmillion and $1 billion per month just to import oil.<\/p>\n
\"This situation certainly needs to be considered fully,
\nbecause if it becomes unmanageable, then it could affect
\nmacroeconomic stability,\" he said.<\/p>",
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