IMF hails 'courageous' move to cut fuel subsidies<\/p>\n
Agence France-Presse, Singapore<\/p>\n
The International Monetary Fund (IMF) on Wednesday welcomed
\nIndonesia's \"wise and courageous\" decision to cut fuel subsidies
\nand urged other countries to do the same.<\/p>\n
Volatile world oil prices remain a risk to projected robust
\nAsian economic growth this year and next, and maintaining fuel
\nsubsidies will hurt countries in the longer term, the IMF's top
\neconomists warned at a forum in Singapore.<\/p>\n
But they said any reduction should be calibrated and well
\nexplained to the public.<\/p>\n
In a move to avert a potentially explosive fiscal crisis,
\ncash-strapped Indonesia said Saturday it was more than doubling
\nthe average cost of fuel, effectively slashing fuel subsidies.<\/p>\n
The decision sparked street protests but the IMF said the move
\nshould shore up investor confidence in the country.<\/p>\n
\"This has been an extremely good step in the right direction,\"
\nIMF chief economist Raghuram Rajan told the Singapore Press Club.<\/p>\n
\"The subsidies were weighing on the government's fiscal
\naccount and there were concerns being expressed by both
\ninternational and domestic investors,\" he said, adding that
\nJakarta's subsequent move to raise interest rates was aimed at
\nwarding off inflation.<\/p>\n
\"I think the problem when governments absorb the price of
\nfuel ... the question is when do they stop? And with Indonesia it
\nwas amounting to 3.0 percent of GDP (gross domestic product)
\napproximately.<\/p>\n
\"We welcome this step and we think it is something that many
\ncountries in the region should adopt.\"<\/p>\n
Rajan said that \"unfortunately in a number of economies in
\nemerging Asia, governments are getting trapped by a populism that
\nthey simply cannot afford\" and stressed it was \"important to
\nrecognize that this must change.\"<\/p>\n
The IMF's deputy director for Asia, Wanda Tseng, described
\nIndonesia's move as a \"wise and courageous decision\".<\/p>\n
She said the subsidies were becoming \"unsustainable\" as they
\naccounted for 25 percent of government spending.<\/p>\n
Tseng also put Asian economic growth at about 6.0 percent this
\nyear and next, but both she and Rajan said oil prices remained a
\nrisk.<\/p>\n
\"The outlook for the region is favorable ... But looking
\nforward, if international prices remain high, the impact on the
\nregion's outlook will certainly be increasingly felt,\" Tseng
\nsaid.<\/p>\n
Benchmark oil prices touched historic highs of above 70 US
\ndollars a barrel on August 30 after Hurricane Katrina hammered
\nthe oil-producing US Gulf Coast.<\/p>\n
Although they have fallen to around 64 dollars a barrel on
\nWednesday, analysts said prices remained highly volatile.<\/p>\n
Among the reasons why soaring oil prices have had a limited
\nimpact on Asian economic growth so far are heavy government
\nsubsidies which have kept fuel costs artificially low, Tseng
\nsaid.<\/p>\n
Asian countries with subsidized fuel costs need to increase
\nprices by around 40 percent if the real price of oil as of end
\nAugust is to be reflected, she added.<\/p>\n
The IMF economists said governments should fully explain to
\ntheir people that oil prices are something they do not control,
\nwhile providing targeted help to the poorest segments of society.<\/p>\n
\"The problem is that the longer you stay away from doing it,
\nthe bigger the mountain that you have to pass through (to
\nconsumers),\" Rajan said.<\/p>\n
Tseng said it was still too early to measure the impact of the
\nreduction of the subsidies on the Indonesian economy but said it
\nshould boost investor confidence.<\/p>\n
\"I think the government has put on a very solid foundation for
\nfurther growth and further development of the economy,\" she said.<\/p>\n
\"And on the energy side, I think it's very important in terms
\nof energy conservation and also investments. Indonesia lags in
\ninvestment in the oil sector and I think this is a positive step
\nfrom that point of view.\"<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/imf-hails-courageous-move-to-cut-fuel-subsidies-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}