Fuel price rise encouraging: S&P<\/p>\n
Claire Leow, Bloomberg\/Jakarta<\/p>\n
Indonesia's decision to cut fuel subsidies and raise fuel prices
\nis an \"encouraging move\" that will relieve pressure on the state
\nbudget, rating company Standard & Poor's said on Monday in an e-
\nmailed statement.<\/p>\n
\"The move should restore investor confidence somewhat,\" the
\nstatement said. \"Besides the fiscal considerations, the fuel
\nsubsidy cut was also necessary to relieve some pressure on the
\nbeleaguered rupiah.\"<\/p>\n
On Oct. 1, the government almost tripled kerosene prices and
\nmore than doubled diesel tariffs to cap energy subsidies that
\nthreatened to widen the budget deficit from Rp 24.9 trillion
\n(US$2.4 billion), or about 0.9 percent of the country's gross
\ndomestic product. Premium gasoline will cost 88 percent more,
\nhigher than economists had forecast.<\/p>\n
The subsidies were artificially propping up demand for fuel,
\nwhile record crude oil prices were forcing importers to buy more
\ndollars to pay for the commodity. The rupiah has declined 9.6
\npercent this year, reducing the government's ability to service
\nand repay its estimated $70 billion of foreign debt.<\/p>\n
\"With the subsidy bill threatening to rise to more than 5
\npercent of gross domestic product this year, the fuel-price
\nincrease was necessary to enable the authorities to limit the
\nfiscal deficit,\" Standard & Poor's said.<\/p>\n
The rupiah gained 0.4 percent to 10,250 a dollar at noon on
\nthe first trading day since the fuel price increase.<\/p>\n
The Indonesian government now needs to take concrete steps to
\nensure more fuel supplies to prevent future problems, the rating
\ncompany said.<\/p>\n
\"Aside from cutting subsidies, boosting Indonesia's domestic
\noil production has to be part of the solution to alleviate the
\nassociated fiscal and external balance problems,\" it said. \"This
\nties in with the need to improve the general business
\nenvironment, which holds the key to more investment.\"<\/p>\n
On Sept. 17, ExxonMobil Corp. agreed to develop Indonesia's
\n$2.6 billion Cepu oil field, a breakthrough in a four-year
\ndispute with the state oil company over how to exploit the
\nnation's biggest untapped deposit.<\/p>\n
The standoff between state oil and gas firm PT Pertamina and
\nExxonMobil, the world's biggest publicly traded oil company, has
\ncontributed to Indonesia's inability to meet rising fuel demand
\nin Southeast Asia's only member of the Organization of Petroleum
\nExporting Countries.<\/p>\n
The nation's decline in oil output has averaged more than 5
\npercent annually during the last five years.<\/p>",
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