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.