Fuel prices to go up soon, BI set for rates increase<\/p>\n
Rendi A. Witular, The Jakarta Post, Jakarta<\/p>\n
The government will raise fuel prices by up to 30 percent in the
\nfirst quarter of this year in a bid to lower the fuel subsidy.<\/p>\n
To limit the inflationary impact, Bank Indonesia has indicated
\nit will raise interest rates or absorb the circulation of base
\nmoney.<\/p>\n
"The first quarter of this year is the best time for us to
\nincrease fuel prices .... We are still considering if a 30
\npercent hike is suitable at the moment," State Minister for
\nNational Development Planning Sri Mulyani Indrawati said at the
\nState Palace on Thursday.<\/p>\n
"The sooner the better for the state budget. The government
\nhas been burdened by the costly fuel subsidy, which has soared
\ndue to the jump in global oil prices," she said.<\/p>\n
With the government maintaining fuel prices throughout 2004,
\nit was forced to set aside some Rp 10 trillion (US$1.1 billion) a
\nmonth from the state budget for the subsidy, the largest fuel
\nsubsidy ever in the country's history.<\/p>\n
The government allocated a whopping Rp 59.2 trillion for the
\nfuel subsidy last year because of rising global oil prices,
\nagainst an initial projection of Rp 14.5 trillion. In comparison,
\nRp 71.9 trillion was allocated for development spending last
\nyear.<\/p>\n
The fuel subsidy has been set at about Rp 19 trillion for
\n2005, but with global oil prices showing little sign of declining
\nthat figure is expected to rise unless the government begins to
\nlift the fuel subsidy.<\/p>\n
In the past, however, any attempt by the government to raise
\nfuel prices in order to cut the subsidy sparked public protests.<\/p>\n
Another concern is that a fuel price hike will drive up the
\ninflation rate, which will lead to decreased purchasing power and
\neventually affect consumer spending.<\/p>\n
Higher consumer spending is a prerequisite for the robust
\ndomestic consumption that since the economic crisis in 1997 has
\nbeen the engine driving economic growth.<\/p>\n
"The government's plan to raise fuel prices has caused
\nproducers to hedge production costs and selling prices, thus
\naccelerating the inflation rate," said Bank Indonesia Governor
\nBurhanuddin Abdullah.<\/p>\n
In a bid to ease inflationary pressure, Burhanuddin has
\nindicated it will raise its benchmark interest rate (SBI) to
\nreach this year's inflation target. The government has targeted
\ninflation at between 6.5 percent and 7 percent.<\/p>\n
"The January inflation level is worrying. The central bank
\nwill adopt a tight monetary policy to control the inflation
\nlevel, with raising interest rates to be our priority," he said.<\/p>\n
The Central Statistics Agency announced on Wednesday the
\ninflation rate for January tipped 1.43 percent, the highest
\nmonthly level in four years, mostly due to a rise in the prices
\nof basic foods, housing and utilities.<\/p>\n
According to Burhanuddin, the price rises were primarily
\ndriven by anticipation of the government's plan to raise fuel
\nprices and due to a number of natural disasters in the country
\nthat had increased the demands for food.<\/p>\n
"In this year's first semester, the central bank will adopt a
\ncombination of base money facilities with interest rate hikes to
\nease inflation. In the second semester, we will only use the
\ninterest rate facilities," he said.<\/p>\n
Signs by the central bank that it will raise interest rates
\ncould prompt banks to adjust upward their lending rates and make
\nloans more expensive for the private sector.<\/p>",
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