Controversy heightens on fuel price hike plan

Controversy heightens on fuel price hike plan

Urip Hudiono and Sri Wahyuni, The Jakarta Post, Jakarta/Yogyakarta

To hike or not to hike. That is the question -- and the fuel for
many arguments currently raging about what the price of fuel
should be come April 1.

Some economists, welfare groups and students are already
protesting the planned cuts to the national subsidies on fuel,
which the government said on Tuesday could end up raising
gasoline and diesel prices by an average of 29 percent.

In tentative subsidy cuts announced to the House of
Representatives Commission XI on financial and budgetary affairs,
the government said it planned to increase the price of Premium
gasoline to Rp 2,400 a liter from Rp 1,810, while diesel fuel
would rise from Rp 1,650 to Rp 2,100.

A closed-door meeting on the plan, led by Vice President Jusuf
Kalla, took place late Wednesday.

The government said it planned to allocate about Rp 17.8
trillion of the money it saved from the cuts to a low-income
assistance package.

Those opposed to the cuts worry about the effect of rising
prices on the poor and on the economy as a whole. Meanwhile,
others, including some in the House, think the cuts are not
coming soon enough.

Commission chairman Paskah Suzetta suggested to the House that
the government speed up its plan to increase fuel prices and
start them in March instead of April.

Paskah, of the majority Golkar Party faction, said any subsidy
cuts would be best be made some time in March as inflationary
pressure from the recent year-end holidays of Idul Fitri,
Christmas and New Year would be at the lowest.

"Inflation is an important factor to be considered in the
plan, as every 1 percent hike in fuel prices would result in a
0.03 percent rise in the index," he said.

"If the government is planning a 29 percent hike, then it has
to prepare for an increase in inflation of 1 percent."

Bank Indonesia has suggested that any subsidy cuts be made
during the harvest when the prices of staple food are at their
lowest and the rupiah is traditionally at its strongest to
minimize large rises in the prices of imports.

Similarly, the Central Statistics Agency (BPS), which reported
a nationwide inflation rate of 1.43 percent for January, said the
government should ensure fuel supplies were adequate around the
increase period. Shortages because of stockpiling could hike fuel
prices -- and therefore inflation -- further, it said. The
government is targeting an inflation rate of 6.5 percent for this
year.

At the meeting, the government presented its planned revision
to the 2005 state budget, which included changing its oil price
assumptions from the previous US$24 per barrel to US$35. With
such a revision, existing fuel subsidies would increase to Rp
39.8 trillion (US$4.28 billion) from Rp 19 trillion.

What is not yet fixed is how much the government will reduce
the subsidies and what percentage of the money saved it will
transfer to the low-income assistance fund for public education
and health services.

Legislators Emir Moeis from the Indonesian Democratic Party of
Struggle (PDI-P) and Dradjat H. Wibowo from the National Mandate
Party (PAN) said their factions would likely oppose any increases
in fuel prices.

Paskah, meanwhile, worried about the potential for the
assistance fund to be abused. "We hope the government focuses on
education and health and does not misuse the (low-income
assistance) funds for other purposes," he said.

In Yogyakarta, students staged street rallies to protest the
likely rises. Meanwhile several economists rejected the plan,
arguing that these economic efficiencies would unfairly burden
the lower and middle-income groups.

Economists Mubyarto and Revrisond Baswir of the Gadjah Mada
University (UGM) said the fuel price hike plan was unjust because
fuel subsidies were not the biggest drain on the state budget.

Most of the money leaving government coffers went to pay
foreign debts and the interest on recapitalization bonds for
banks during the late 1990s financial crisis, they said.

Economist Edy Suandi Hamid of the Yogyakarta-based Indonesian
Islamic University (UII) said the government would be better off
transferring the money spent on fuel subsidies to keep food
prices down as these were likely rise if fuels did.