BI urges govt to hike fuel prices immediately

BI urges govt to hike fuel prices immediately

Rendi A. Witular, The Jakarta Post/Jakarta

The central bank is urging the government to immediately raise
fuel prices to end uncertainty, since the issue has been used by
some parties to speculate over the prices of goods, which then
pushes up inflation.

The government should no longer play it safe by constantly
delaying plans to raise fuel prices, Bank Indonesia Governor
Burhanuddin Abdullah said, saying that a further delay would only
put the economy at greater risk.

"There is currently uncertainty over our economy due to the
delay.

"I suggest the government immediately executes the plan or it
will put our inflation target in jeopardy," he said at the
meeting of a powerful business lobby group within the Indonesian
Chamber of Commerce and Industry (Kadin), which entered its
second and final day on Friday.

The government had earlier said that it would probably raise
fuel prices by an average of 30 percent in the near future, as a
result of a reduction in the fuel subsidy.

Still, the time for the scheduled increase has not been
determined.

The plan to raise fuel prices was actually rolled out during
the administration of former President Megawati Soekarnoputri,
while the current government has been pledging to execute the
plan since November.

"The government has conducted an information drive about the
plan in order to reduce protests from the public, and that is
good. But it remains unclear when it will take place. Some
businessmen are now taking advantage of the uncertainty," said
Burhanuddin.

According to Burhanuddin, more and more businessmen were now
stockpiling their goods in anticipation of the fuel hike to later
sell the goods at higher prices, causing a shortage in supply
which in turn triggers inflation due to the uncontrollable rise
in the prices of the goods.

The Central Statistics Agency (BPS) announced earlier this
week that the inflation rate for January stood at 1.43 percent,
the highest monthly level in four years, mostly due to a rise in
the prices of basic foods, housing and utilities.

During the meeting with Kadin, Burhanuddin warned businessmen
against stockpiling because it would destabilize the current
macroeconomic condition.

The government has targeted inflation at between 6.5 percent and
7 percent.

A raise in inflation eats up the people's purchasing power and
eventually affects consumer spending -- a prerequisite for the
robust domestic consumption that has been the driving force
behind economic growth since the economic crisis.

Burhanuddin indicated on Thursday that the central bank would
raise its benchmark interest rate (SBI) to limit the inflationary
impact. At present, the three-month SBI rate stands at 7.42
percent.

Burhanuddin, however, was optimistic that the banking sector
would not make an upward adjustment in its interest rates amid
stiff competition in offering loans to the real sector.

"I don't think the rise in SBI will prompt banks to increase
their lending interest rate. They still have to consider their
competitors before taking any decision, or risk lose their
customers," he said.