Fuel, power prices to go up in June

Fuel, power prices to go up in June

JAKARTA (JP): The government finally decided on Thursday to
raise fuel prices by an average 30 percent and electricity rates
by 20 percent next month in a bid to help keep the 2001 state
budget deficit at a safer level.

"Fuel prices will be increased by 30 percent, and electricity
rates by 20 percent on June 15," Finance Minister Prijadi
Praptosuhardjo told a press conference following a limited
cabinet meeting on the revision of the 2001 state budget.

Prijadi said that the government would submit the revised
budget including the new plan on fuel prices and power rates to
the House of Representatives on Monday for approval.

"We will meet the House and submit the revised budget on
Monday, and we'll arrange a schedule to discuss the revision," he
said.

The budget deficit could widen to a critical level of 6
percent of gross domestic product (GDP) (more than Rp 86
trillion), compared to the initial projection of 3.7 percent of
GDP, due to the sharp plunge in the value of the rupiah and
rising domestic interest rates.

In a bid to maintain the deficit at the safer level of around
3.7 percent of GDP, the government has designed several measures
which basically focus on increasing domestic revenue and cutting
spending.

Cutting fuel subsidies, which means an increase in fuel
prices, has been the most crucial and difficult choice of the
program to trim government spending particularly due to the
serious political consequences.

The fuel price increase in April 1998 had contributed to the
downfall of the former president Soeharto in May 1998.

Some analysts have earlier said that with the political
position of President Abdurrahman Wahid already significantly
weakened by the recent issuance of a second censure by the House
of Representatives over his alleged involvement in two financial
scandals, the fuel price increase would be a political suicide.

It is not clear, however, whether the fuel price increase
would also affect the price of fuel products purchased by people
of a low income bracket and the general public.

The recent fuel price increase had only affected the fuel
products used by industries.

Some government officials have earlier said that the
government would introduce measure to protect people in the lower
income bracket from the impact of the fuel price increase.

The drop in the value of the rupiah has raised the fuel
subsidy in the 2001 state budget to around Rp 66 trillion from
the initial estimate of around Rp 53 trillion.

In a bid to limit spending, the government plans to reduce the
fuel subsidy by around Rp 6 trillion resulting in a 30 percent
increase in the average price of fuel products.

The government also plans to raise value added tax (VAT) from
the current level of 10 percent to 12.5 percent in a bid to boost
domestic revenue.

Some economists have earlier warned that the raising of VAT
would be more damaging to the overall economy as it would further
hurt the business sector already facing the risk of lower
business volume due to the expected slower economic growth at
home and abroad.

The 2001 state budget revision includes changes in the
exchange rate of the rupiah against the U.S. dollar to Rp 9,600
per dollar from the initial assumption of Rp 7,200 per dollar,
inflation rate to 9.3 percent from 7.2 percent, GDP growth to 3.5
percent from 5 percent, and interest rate of Bank Indonesia SBI
promissory notes to 15 percent from 11.5 percent.

The government expects the House to complete the debating
process of the budget revision quickly to allow the government to
request the International Monetary Fund to immediately disburse
its crucial loan to the country.

The IMF had earlier demanded that it would only agree to
resume economic talks with the government after the House
approved the budget revision.

The IMF delayed the disbursement of its loan to the country
late last year due to slow progress in the implementation of key
aspects of the economic reform program.

Meanwhile, the IMF hailed on Thursday the government's plan to
submit the revised state budget to the House on Monday, saying
that it would help open the way for the IMF to disburse the loan.

"The government has decided to take bold and necessary steps
to prevent the fiscal problem from worsening, so we are very
encouraged by the (finance) minister's statement," IMF Jakarta
representative John Dodsworth told Reuters.

The April 1998 fuel price increase was also recommended by the
IMF. (rei)