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.