Government to increase fuel prices on April 15

Urip Hudiono and Muninggar Sri Saraswati, The Jakarta Post, Jakarta

The government would not increase the fuel prices until April 15, Coordinating Minister for the Economy Aburizal Bakrie said on Thursday.

"The fuel price hike will be effective starting April 15," he said. "Kerosene prices will also increase, although it will only be slightly."

While details remain sketchy, Aburizal said the hike could save this year's state budget spending of up to Rp 50 trillion (US$5.4 billion).

The government's decision not to raise domestic oil-based fuel prices -- despite the peak in global oil prices -- cost the government about Rp 62.8 trillion.

Prior to the announcement of the fuel price hike, the government would announce and implement its compensation scheme to provide better public health and education services to the poor, the group the worst-affected by the subsidy cuts, Aburizal said.

Separately, Vice President Jusuf Kalla said the government would make a decision on the amount of the fuel price hike in coming weeks.

"The government must (increase the price). Otherwise, we must disburse up to Rp 100 trillion for the subsidy should today's oil price remain," he said.

Abdurizal said the government was prepared to guarantee supplies of fuel to anticipate possible stockpiling before the price increase.

State Minister for National Development Planning Sri Mulyani Indrawati had said the government would only raise the prices of fuels mainly used by higher-income people -- and not for fuels such as kerosene used by the poor.

Commenting on the government's plan, Central Statistics Agency (BPS) head Choiril Maksum said the decision would affect the national inflation rate and prices for the commodity were likely to increase before the hike.

"Such a psychological effect is hard to calculate. But considering the hike is likely to happen during the harvest, (the harvest) could actually help level out inflation because there are lower prices in staple foods during that time," he said.

"A 30 percent hike in premium gasoline would raise inflation by 0.56 percent, while a similar raise in diesel fuel would increase it by 0.0248 percent," Choiril said.

According to his predictions, a 15 percent hike in the price of kerosene, meanwhile, would increase the inflation by 0.1864 percent, while a 15 percent rise in electricity rate would affect inflation by 0.5355 percent.

Fuel prices hikes would also lead state-owned electricity company PT PLN to increase its rates because many of its power plants still used diesel fuel.

The World Bank has estimated that a 10 percent hike in fuel prices could lead to a 0.6 percent rise in the overall inflation rate.

Another survey by Bank Indonesia predicts that inflation would increase by 0.02 percent for every 1 percent hike in fuel prices.

In the long run, the study says, any hikes would also affect the prices of other goods and raise inflation by another 0.036 percent.

BPS reported 1.43 percent national inflation the month of January, and a 6.4 percent annual inflation rate for December 2004, below the government's target of 7 percent.