Govt confirms fuel price hike in 2005
Govt confirms fuel price hike in 2005
The Jakarta Post, Jakarta
After months of speculation, the new government confirmed on
Thursday it would reduce the fuel subsidy for next year, making a
hike in domestic fuel prices in the near future inevitable.
A government team is now studying a modified subsidy scheme to
replace the current scheme, which is seen as benefiting the rich
more than the poor, according to Coordinating Minister for the
Economy Aburizal Bakrie.
"We are readying a subsidy formula that will be more pro-poor.
The (fuel) subsidy will be reduced, but in return a direct
subsidy will be given to certain sectors such as education,
health and others," Aburizal said.
Aburizal said a "shift" in the fuel subsidy policy was
necessary because the current subsidy failed to reach those who
needed it most.
"Even I benefit from the existing subsidy because it makes
fuel prices cheap," he added.
Aburizal did not provide details on the new scheme, including
whether it meant the government would submit a revision of the
2005 state budget to the House of Representatives sooner than
scheduled.
Under existing law, the government is allowed to submit a
revision of the state budget to the House only in the second
semester of the fiscal year.
Aburizal did not mention by how much the government would be
willing to reduce the subsidy.
Yet, his remarks should end speculation over the issue, at
least for a while.
Debate over the fuel subsidy took off amid soaring global oil
prices, which have been hovering at levels well above those
anticipated in the state budget.
This has meant that Indonesia has had to allocate more money
for the fuel subsidy.
After projecting the fuel subsidy at about Rp 14.5 trillion
for this year, rising global oil prices boosted the subsidy to a
whopping Rp 69.2 trillion -- just slightly less than the Rp 71.9
trillion allocated for development spending.
The subsidy has hugely burdened the already cash-strapped sate
budget, putting pressure on the government to review the scheme.
Also, the subsidy has encouraged fuel smuggling to neighboring
countries.
The World Bank, one of the country's major donors, was the
latest to urge the government to cut the fuel subsidy, which it
said was draining away money the government could spend on
poverty alleviation.
It said the existing subsidy scheme benefited the rich five
times more than it did the poor.
Experts believe the impact of a domestic fuel price hike on
inflation would be manageable, with a 10 percent increase in fuel
prices expected to add about 0.6 percent in inflation.