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.