Government to raise fuel prices in October, April

JAKARTA (JP): The government will increase domestic fuel prices by an average of 12 percent in October this year, according to finance minister Bambang Sudibyo.

Bambang said on Monday that fuel prices would be raised again in April 2001 in a bid to help lower the country's budget deficit. He said the government had yet to decide on the amount of the increase.

"The delayed increase in fuel prices will be implemented in October (2000)," he told the House of Representatives Commission IX for state budget and finance when unveiling the 2001 state budget assumptions.

"We plan to increase fuel prices again in April to further reduce fuel subsidies in the 2001 state budget," he added.

The government initially planned to raise fuel prices in April this year, but the plan was postponed mostly due to widespread public protests.

The government plans to completely end fuel subsidies by 2003 as a consequence of the implementation of the Asian Free Trade Area (AFTA).

The International Monetary Fund also requires the government to gradually eliminate fuel subsidies.

Bambang also said the government projected the economy would grow by between 4 percent and 5 percent next year, compared to the 3 percent to 4 percent estimate for this year.

"The government is convinced that the 2001 target will be achieved," he said, pointing out that the country was on track to achieve a 4 percent economic growth this year which would provide a basis for next year's growth.

Bambang said inflation would be in the range of 6 percent to 8 percent, compared to the 5 percent to 7 percent target for this year.

He said oil prices were projected to be in the range of US$17 to $22 per barrel.

"This is a moderate assumption," he said, pointing out that the international projection was set at $22 to $28 per barrel.

He said the budget deficit for 2001 was assumed at 3 percent to 4 percent of gross domestic product versus the 4.8 percent of GDP estimate for this year.

He said the weighted average interest rate for Bank Indonesia three-month SBI promissory notes was projected to be between 10 percent and 12 percent, compared to the current level of 10.9 percent.

Bambang said the rupiah's exchange rate against the U.S. dollar was assumed at Rp 6,800 to Rp 7,800, compared to the Rp 7,000 per dollar assumption used in the current budget.

He said the current weakening of the rupiah against the dollar was only temporary mostly due to fears of domestic political instability.

The rupiah has been hovering at around Rp 8,500 per dollar over the past month.

"The current weakness in the rupiah is temporary ... The government is convinced that the exchange rate will move toward the projected range," he said.

The currency market has been nervous over plans by some legislators to unseat President Abdurrahman Wahid at the General Session of the People's Consultative Assembly (MPR) in August.

"This is democracy. We should not be nervous. The President himself is not nervous in facing all this," Bambang said.

Bambang also reiterated that the government would not revise the assumptions of the current state budget despite the weakening of the rupiah.

He said the plunge of the rupiah had both affected the spending and revenue sides of the budget, with the net outcome still benefiting the government.

"If we revise the exchange rate assumption the market will think that we're nervous ... The market will think that we can't cope with the problem," he said.

Bambang said the government would start imposing value-added tax (VAT) and sales tax on luxury goods in Batam in 2001. The island is currently a bonded zone.

The government initially planned to introduce a 10 percent VAT and 10 percent to 35 percent sales tax on luxury goods in April, but delayed it due to widespread protest.

Bambang also said the central government was on track to start implementing Law No. 25/1999 on fiscal balances between Jakarta and regional administrations by January 2001.

But he said the implementation of the new law in the early stage would not be perfect, possibly because of a lack of readiness on the part of regional governments. (rei)