Government will not raise fuel prices, Boediono says

The Jakarta Post, Jakarta

Minister of Finance Boediono indicated on Friday that the government would not increase domestic fuel prices despite the current sharp rise in the international price of oil.

"We will peg domestic fuel prices (at a certain level) so as not to jeopardize the economy and not place an additional burden on the public. But consequently, the (fuel) subsidy will have to be increased. That's what we have to prepare for," he told reporters.

Fears over a possible U.S.-led military strike on Iraq have sent the price of oil climbing to above US$35 per barrel, much higher than the government's target of $22 per barrel under the 2003 state budget.

This has led to speculation that fuel prices in the domestic market will be raised to better reflect international prices.

Separately, Vice President Hamzah Haz was quoted by Antara as saying on Friday that the government would not raise domestic fuel prices unless the international oil price jumped to $50 per barrel.

"The government will try to maintain the (fuel) prices (at current levels). We have not yet considered raising them," he said.

The government was forced to cancel a fuel price hike earlier this year following widespread protests from various groups.

Increasing fuel prices is a sensitive political issue in this country as such a move triggers higher prices for other commodities and services, hurting both lower-income groups and business.

But Boediono said that keeping domestic fuel prices low would require a greater government subsidy.

As set out in this year's state budget, the total allocation for fuel subsidies is earmarked at Rp 13.3 trillion (about $1.5 billion).

Boediono did not elaborate as to how much money would have to be allocated to cover the higher-than-expected subsidy spending, saying that the calculations had yet to be finalized.

Boediono said he would make sure, however, that all the necessary calculations would have been completed by the time the government submitted its budget-implementation report to the House of Representatives sometime in the middle of this year.

According to the prevailing regulations, after the first semester of the fiscal year the government has to report to legislators on the implementation of the state budget and whether any adjustments are needed to the basic budget assumptions -- including oil prices.

"Yes, there will be revisions, but we need to calculate them first. They will all have been completed by the time we submit it (the first semester report) to the House," he said.

In contrast to the issue of higher fuel subsidies, the government is actually enjoying windfall profits from skyrocketing international oil prices as the country is also an oil exporter.

The country imports a certain amount of crude oil to produce local fuel products.

Boediono declined to say how much the expected windfall gains from oil would amount to this year.