Fuel subsidy to be aimed at halting smuggling<\/p>\n
JAKARTA (JP): Minister of Finance Mar'ie Muhammad said here
\nyesterday that the government's future fuel price subsidization
\npolicy would be designed to limit the smuggling of oil products
\nfrom the country.<\/p>\n
Mar'ie said that subsidizing fuel prices on the domestic
\nmarket provided opportunities for smugglers to illegally export
\nfuel products -- especially diesel oil -- to neighboring
\ncountries with higher fuel prices.<\/p>\n
"Our diesel oil products are very cheap, and it's a good
\ntarget for smuggling," he said during a House of Representatives
\ndeliberation of the revised state budget proposal for 1998\/1999.<\/p>\n
The revised budget, balanced by law, is set at Rp 147.22
\ntrillion, an increase of 45.6 percent over the current budget
\nending March 31.<\/p>\n
The original draft budget for 1998\/1999 announced by the
\nPresident on Jan. 6 projected a budget of Rp 133.5 trillion.<\/p>\n
Mar'ie explained that controlling smuggling was a difficult
\ntask since Indonesia was a country with vast coastal areas.<\/p>\n
"I have to be honest about this," he said in his response to a
\nHouse proposal to maintain the fuel subsidy.<\/p>\n
Some House members requested the government to direct its fuel
\nsubsidy to low-income people, who have been severely affected by
\nthe ongoing economic crisis.<\/p>\n
The draft budget allocates Rp 7.45 trillion to subsidize fuel
\nprices in the 1998\/1999 fiscal year.<\/p>\n
The fuel subsidy has recently gained the spotlight following
\nthe government's agreement to adhere to the International
\nMonetary Fund's 50-point economic reform program which includes
\ngradually adjusting fuel prices to international standards from
\nApril 1.<\/p>\n
Mar'ie also said the fuel subsidy would cause market
\ndistortions and inefficiency in the economy.<\/p>\n
"All these factors would be considered in directing the
\nsubsidy policy," he said.<\/p>\n
He added that the government would consider the House request.
\n"The fuel subsidy will not be abandoned totally," he said.<\/p>\n
He stressed, however, that the subsidy policy would not be
\nimplemented in such a way as to detract from economic efficiency.<\/p>\n
Indonesia last raised fuel prices in 1993 when it set the
\nprice of automotive diesel oil at Rp 380 per liter, industrial
\ndiesel oil at Rp 240 per liter, kerosene at Rp 280 per liter,
\npremium gasoline at Rp 700 per liter, super gasoline at Rp 840
\nper liter, avgas at Rp 420 per liter and marine fuel at Rp 240
\nper liter.<\/p>\n
Mar'ie also explained that the 1998\/1999 draft budget was part
\nof the government's macroeconomic strategy to deal with the
\neconomic crisis.<\/p>\n
Adjustment<\/p>\n
Mar'ie told the House members that the government was prepared
\nto adjust the various assumptions in the budget if it failed to
\nachieve its targets which included a zero percent economic
\ngrowth, 20 percent inflation rate and an exchange rate of Rp
\n5,000 to the U.S. dollar.<\/p>\n
"So far, there has been no indication that the assumptions
\nwould not be met," he said.<\/p>\n
He stressed that the government would not raise the salaries
\nof government civilian and military employees due to the crisis.<\/p>\n
"But if the government's finances improve, we would consider
\nsuch a request (to raise salaries)," he said.<\/p>\n
Mar'ie also reiterated the government's plan, announced
\nTuesday, to raise domestic bank minimum capital requirements to
\nRp 1 trillion by the end of 1998, Rp 2 trillion by the end of
\n1999 and Rp 3 trillion by the end of 2003 in order to further
\nstabilize the banking industry.<\/p>\n
Currently, the minimum capital requirement is Rp 150 billion
\nfor foreign exchange banks and Rp 50 billion for non-foreign
\nexchange banks.<\/p>\n
He explained that the new requirements were aimed to promote
\nmergers in the banking industry. "The government has called on
\nthe sector to merge for a long time. In fact, we arranged a
\nfiscal incentive two years ago," he pointed out.<\/p>\n
Mar'ie said there had been positive signs that Indonesia's
\nletters of credit, which recently were being rejected by overseas
\nbanks, had started to roll in again.<\/p>\n
He explained that proposals by foreign governments and
\ninternational institutions to help solve the credit problem was a
\nbig help.<\/p>\n
He said the government's guarantee of bank obligations to
\ncreditors and depositors also helped improve confidence in
\naccepting Indonesian letters of credit.<\/p>\n
New extension of credit would help exporters start their
\nbusinesses again, which has been recently hampered by
\ndifficulties in obtaining imported raw materials due to the
\ncredit snag.<\/p>\n
Mar'ie also said to boost the country's non-oil and non-gas
\nexports, the government would continue providing export credit
\nfacilities which included rediscount post-shipment and pre-
\nshipment facilities.<\/p>\n
He also stressed that the government had no plans to
\nreschedule servicing its foreign debts despite calls from the
\nHouse.<\/p>\n
"In any condition, the government is working to maintain its
\ncredibility in the international community," he pointed out.<\/p>\n
The draft budget allocated a total of Rp 37.8 billion in
\nservicing the state's foreign loans. (08)<\/p>",
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