Government to raise fuel prices in October, April

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)