Government plans 30% hike in fuel prices this year
Government plans 30% hike in fuel prices this year
JAKARTA (JP): The government may be forced to raise fuel
prices by an average 30 percent this year in a bid to help
maintain the 2001 state budget deficit at a safe level,
Coordinating Minister for the Economy Rizal Ramli said on
Wednesday.
Speaking to reporters following a meeting with Vice President
Megawati Soekarnoputri on the state budget, Rizal said that the
price increase was a consequence of the plan to reduce the fuel
subsidy in the state budget.
But Rizal was quick to say that the government would try to
ensure that the subsidy cut would be mainly shouldered by the
middle-to-high income earners rather than the poor.
The current state budget deficit could widen to a dangerous
level of 6 percent of gross domestic product (GDP) or nearly Rp
90 trillion (about US$8 billion), compared to the initial
projection of 3.7 percent of GDP, primarily due to the sharp
plunge in the value of the rupiah against the U.S. dollar and
rising domestic interest rates.
The government is planning several measures to try to limit
the deficit to around 3.8 percent of GDP primarily by cutting
spending including the fuel subsidy, and raising domestic revenue
particularly taxes.
The government plans to reduce the fuel subsidy by around Rp
5.6 trillion from Rp 41.3 trillion set under the current budget.
But Rizal said that raising fuel prices was a very difficult
choice because of the political and social consequences of the
policy.
"We want to fix the budget by cutting the fuel subsidy, but we
don't want to see a repetition of the May (1998) incident," he
said, pointing to the social unrest that led to the downfall of
former president Soeharto after he raised fuel prices in April
1998.
The government had earlier canceled the plan to raise fuel
prices by an average 20 percent on April 1 due to the unfavorable
political climate.
The government instead raised fuel prices for industries by
between 50 to 100 percent, leaving the prices of kerosene and
fuel products sold at gas stations unchanged.
Meanwhile, economist Didik Rachbini said that the time was not
yet ripe for the government to raise fuel prices due to the
current political uncertainty and weak purchasing power of the
people.
"It is better for the government to focus on cutting spending
for the more prosperous provinces," Didik said.
The government has said that it plans to cut allocated funds
for wealthier provinces and districts including by encouraging
them to purchase government bonds, shares in state-owned
enterprises, and assets under the Indonesian Bank Restructuring
Agency (IBRA).
The above measures are part of the plan to revise the current
state budget.
The revision will include the change in budget assumptions
including revising the rupiah rate to Rp 9,600 per U.S. dollar
from an earlier estimate of Rp 7,800 per dollar, inflation rate
to 9.3 percent from 7.2 percent, economic growth to 3.5 percent
from 5 percent, and interest rate of Bank Indonesia SBI notes to
15 percent from 11.5 percent.
Rizal said that the revised state budget would be discussed at
a cabinet meeting today before submitting it to the House of
Representatives for deliberation.
Rizal did not say when the budget would be submitted to the
House, but Minister of Trade and Industry Luhut B. Pandjaitan
said that it would only be made after the government held final
discussions on May 16.
The House approval on the budget revision is a prerequisite
demanded by the International Monetary Fund to decide on the
disbursement of its next US$400 million loan tranche to the
country. (rei)