House askes SBY to mull fuel hike<\/p>\n
Dadan Wijaksana, The Jakarta Post\/Jakarta<\/p>\n
The incoming government should consider raising fuel prices at
\nhome later this year in a bid to cut losses caused by the
\nburgeoning cost of the nation's fuel subsidy that could cripple
\nstate finances, the House of Representatives state budget
\ncommission said.<\/p>\n
The recommendation emerged during a meeting late on Wednesday
\nbetween the commission and Minister of Finance Boediono to
\nconclude the revision of the 2004 state budget.<\/p>\n
The revised state budget allocated a whopping Rp 59.2 trillion
\n(about US$6.55 billion), a 307 percent increase from Rp 14.5
\ntrillion earmarked in the original state budget, to cover the
\nfuel subsidy, which has inflated due to the current surge in
\ncrude oil prices.<\/p>\n
The revised budget assumed an oil price average of $36 per
\nbarrel for this year, compared to the $22 per barrel rate
\npreviously assumed. Currently oil prices are at around $45 a
\nbarrel.<\/p>\n
The new subsidy, however, was slightly lower than the Rp 63
\ntrillion figure proposed by the government in August when it
\nfirst started budget revisions.<\/p>\n
The commission said in order to reduce the cost of the subsidy
\nfrom Rp 63 trillion to Rp 59.2 trillion, the government should
\nconsider three options: Raising fuel prices starting in November,
\nreducing domestic fuel consumption volumes, and launching tough
\nefficiency measures.<\/p>\n
The meeting had not finished at 10.30 p.m.<\/p>\n
The fuel subsidy maintains fuel prices at home at low levels
\nby international standards, keeping fuel and transportation costs
\naffordable for the country's poor. Cheap gasoline and kerosene,
\nhowever, also encourages people to consume greater amounts of
\nfuel, cutting back the margins that can be exported overseas.<\/p>\n
High oil prices have raised concerns over the impact of the
\nhuge subsidy on the state budget and the overall economy.<\/p>\n
Some analysts have suggested the government start cutting down
\nthe subsidy and raise fuel prices to avoid a possible fiscal
\ndisaster, and also target the subsidy to the poor.<\/p>\n
At present both rich and poor can take advantage of cheap fuel
\nprices and some subsidized fuel products are also smuggled to
\nneighboring countries.<\/p>\n
The subsidy's critics say the huge subsidy fund would be
\nbetter allocated for financing economic development programs.<\/p>\n
Susilo Bambang Yudhoyono, who is widely expected to become the
\nnext president on Oct. 20, has said during his election campaign
\nhe would have no option than to cut back on the subsidy if oil
\nprices remained stubbornly high. He also vowed to ensure that
\nsuch policies would not have a severe impact on low income
\npeople.<\/p>\n
It remains unclear whether Susilo's new government and new
\nlawmakers in the House of Representatives would agree to the
\nrecommendations of the current budget committee.<\/p>\n
Meanwhile, the budget commission earlier in the day
\ncompleted debates on the 2005 state budget draft, including
\nallocation for the fuel subsidy, which has been earmarked at Rp
\n19 trillion.<\/p>\n
The amount of allocated for the subsidy, much less than
\nearmarked for this year, was based on assumptions that oil prices
\nwould fall to around $24 a barrel next year. Many critics have
\nsaid this assumption is unrealistic because crude prices have
\nbeen averaging at about $45 a barrel during the past couple of
\nmonths.<\/p>\n
The new government and lawmakers are also expected to revise
\nthis budget.<\/p>\n
Eyebox<\/p>\n
State Budget for 2004 (revision), 2005
\n---------------------------------------------------
\nAssumptions 2004 (revised) 2005<\/p>\n
---------------------------------------------------
\nGrowth (%) 4.8 5.4
\nInflation (%) 7.0 5.5
\nExchange rate (Rp\/S) 8,900 8,600
\n3-month SBI (%) 7.5 6.5
\nOil price ($\/barrel) 36 24
\nOil output (mbd) 1.072 1.125
\n----------------------------------------------------
\nSource: Ministry of Finance<\/p>",
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