Govt may raise domestic fuel prices in January

Govt may raise domestic fuel prices in January

Rendi A. Witular and Urip Hudiono, The Jakarta Post, Jakarta

With soaring oil prices showing little sign of abating in the
foreseeable future, the government is likely to increase fuel
prices in or before January in order to keep the budget deficit
within reasonable bounds and to sustain economic progress.

A rise in fuel prices, however, will only be possible if the
government manages to finish registering the number of poor
people eligible to benefit from assistance funds derived from
reduced fuel subsidy spending by September, Vice President Jusuf
Kalla has said.

"I think, though, it will be difficult to wait until January
because the budget could well be derailed (by the soaring subsidy
spending). There is also a possibility, however, that the rise
will be in January," he said after presenting awards at the 2004
Annual Report Awards ceremony on Wednesday.

Kalla refused to say how much any increase in fuel prices
would be, stressing that this would depend on global oil prices
at the end of this year, the level of subsidy spending and the
number of poor people eligible to benefit from the assistance
funds.

"The government is still carrying out a comprehensive audit on
the impacts that will result from cuts in subsidy spending, as
well as ways of containing or reducing these impacts over the
short term and mid term," he said.

At present, the Central Statistics Agency (BPS), local
administrations and the State Development Comptroller (BPKP) were
still taking an inventory of the number of the poor people, Kalla
added.

The government was also currently considering ways of setting
up a new and direct subsidy system that would reduce the impact
of fuel price hikes on people living below the poverty line by
providing them with direct assistance for healthcare, education
and transportation.

Kalla had previously said that rising global oil prices would
force the government to spend more than Rp 135 trillion (US$13.82
billion) this year on fuel subsidies, with about half of this
going on the transportation sector.

Government spending, meanwhile, was expected to reach some Rp
542.2 trillion by the end of the year, resulting in a deficit of
Rp 26.18 trillion, or some 1 percent of this year's expected GDP
of Rp 2,636 trillion.

Meanwhile, Minister of Finance Jusuf Anwar concurred with
Kalla, saying the country could not afford to spoil itself "with
cheap domestic fuel forever."

"Something must be done, the question now is when," he said,
adding that the recent increases in oil prices -- which the
government could do nothing about -- would definitely cause
difficulties for this year's budget.

Nevertheless, Jusuf was upbeat that the government would still
be able to keep the budget under control. "What is important now
is to secure the state budget -- secure the deficit and its
financing -- through even tighter fiscal policies."

These deficit financing schemes, Jusuf explained, would include
more prudent spending until the end of the year, and an all-
out effort to boost state revenues, particularly from taxes, the
profits from state-owned enterprises, and privatization proceeds.