Fuel hike to cause less impact to the poor: Govt

Fuel hike to cause less impact to the poor: Govt

Urip Hudiono, The Jakarta Post/Jakarta

The government is working out a progressive scheme to minimize
the impact of a fuel price hike on the poor next year, a senior
economics minister says.

State Minister of National Development Planning Sri Mulyani
Indrawati told a House of Representatives State Budget Commission
hearing that under the plan, the poor would bear only a seventh
of the total impact of any price rises in goods caused by a price
hike.

The government plans to scrap the burdensome fuel subsidies
that are currently putting a huge dent into the state budget.

Increasing local consumption along with declining production
have made Indonesia a net oil importer for the first time this
year. This coupled with historically high international oil
prices has caused the cost of the subsidies to rise dramatically.

"A hike in fuel prices would, of course, affect everyone but
if they were implemented under a progressive scheme, then we can
ensure that the haves -- rather than the have-nots -- carry more
of the burden," she said.

"A figure we are considering is a ratio of seven to one, which
means that if the fuel price hike causes a 7 percent rise in the
prices of goods for the wealthy, then the poor should only
experience a 1 percent rise."

Mulyani asserted the scheme would be more fair than the
existing fuel subsidy scheme, which had brought more benefits to
the wealthy.

"Of the Rp 59.2 trillion (US$6.5 billion) allocated for fuel
subsidies this year, the country's richest (citizens) have
enjoyed 50 percent, while the poor have only enjoyed 6 percent,"
she said.

For kerosene alone, the rich had absorbed 31 percent of the
subsidy, while the poor had only consumed 10 percent worth, she
said.

A large portion of the subsidized kerosene intended for
domestic use was also misused for industrial purposes, she said.

Mulyani said the new pro-poor scheme would be implemented by
carefully calculating the appropriate hike for each fuel type,
and diverting subsidy funds saved from the hike for better public
education and health services.

"The government will extend its tuition-free, nine-year
compulsory education with more scholarships and school supplies
grants to state schools," she said.

"We will also make health care services for mothers and
children at community health centers (Puskesmas) and Class 3
hospitals free, and work out a direct transportation subsidy
scheme."

Mulyani had previously said the hike, which would likely
happen in February or April, would only affect fuel types mostly
used by wealthier citizens, like gasoline, and not kerosene,
which is primarily used by the poor.

Speaking on the same occasion, Bank Indonesia Governor
Burhanuddin Abdullah said that a survey by the central bank shows
that inflation would rise by 0.02 percent for every 1 percent
hike in fuel prices.

"This would happen upon the hike and affect the prices of
goods directly linked with fuel," he said. "Meanwhile, in the
long run, it would also affect the prices of other goods and
raise the inflation again by 0.036 percent."

Economist Dradjad H. Wibowo, however, expressed his skepticism
over the proposed scheme.

"The government has no database yet of the country's poor, and
no working system to properly manage the effect of a fuel price
hike on inflation," he said.