Fuel subsidy spending to double: Govt

The Jakarta Post Jakarta

With world oil prices still regularly hitting record highs, the government has admitted that its fuel subsidy expenditures will likely double over and above its forecast allocation for this fiscal year, and in the process doubling the state budget deficit.

Vice President Jusuf Kalla announced on Friday that because oil prices have surpassed US$66 a barrel, fuel subsidies could reach up to Rp 150 trillion (US$15.3 billion) and push the budget deficit up to nearly Rp 70 trillion.

The government had forecast the deficit to reach Rp 26.2 trillion, or 1 percent of Indonesia's gross domestic product (GDP).

The government has only allocated Rp 76.5 trillion for fuel subsidies -- based on a full-year consumption of 59.6 million kiloliters, oil prices at $45 per barrel and a rupiah exchange rate of Rp 9,300 a dollar.

"We can no longer live by burning money with such cheap domestic fuel prices," Kalla said. "We just cannot afford it."

In light of this, the government is ever more determined to reduce the fuel subsidy by increasing domestic fuel prices and changing its current scheme to a direct subsidy for the poor.

Kalla explained that poverty eradication funds would be disbursed to poor people every three months. The Central Statistics Agency is expected to complete its registration of those eligible to receive assistance funds under the scheme by September.

He, however, refused to go into details on a possible fuel price hike, stressing that it would depend on the global oil prices and the rupiah exchange rate as well as the level of subsidy spending to be agreed upon by both the government and the House of Representatives.

"Those are the three main factors we will take into account," Kalla said.

To finance the possible rise in fuel subsidies and keep this year's deficit at 1 percent of the GDP, Minister of Finance Jusuf Anwar said the government has considered to use unspent expenditure allocations from previous state budgets.

"We will propose this to the House next week," he said, explaining how the government had previously used Rp 7.5 trillion in 2003 and Rp 3 trillion last year of such funds after the House's approval.

Jusuf is scheduled to have a hearing with the House's budget commission on Monday on the first half budget report.

The finance ministry's Director General of the Treasury, Mulia Nasution, estimated that the unspent allocations as of last year was some Rp 21 trillion.

"We don't have the exact figure and if it is actually extra funds that we can use. The government is still finalizing last year's state budget report," he said.

Jusuf had previously said that the government would finance the possible gap by boosting state revenues from taxes, customs and excise, as well as from the profits and privatization proceeds of state-owned enterprises.

Elsewhere, Coordinating Minister for the Economy Aburizal Bakrie said the government would also continue its energy-saving campaign to reduce fuel consumption, which at present is estimated to reach 65 million kiloliters for the year.

"We will particularly encourage the rich to be more austere in using energy," he said.

Aburizal further said the government would also continue encouraging the use of alternative fuels -- particularly coal, natural gas and biodiesel fuel.

"The current price of biodiesel at Rp 3,000 a liter plus distribution costs is nearing feasibility for industrial purposes," he said. "If fuel prices are no longer subsidized, it could prove to be even more competitive by price."