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.