Govt promises no fuel, electricity hikes in 2005

Zakki Hakim and Urip Hudiono, The Jakarta Post, Jakarta

The current administration has decided not to raise fuel prices or electricity rates next year, meaning that the state budget will have to subsidize the two commodities.

The proposal is contained in the draft of the 2005 state budget, which will be submitted to the House of Representatives for deliberation on May 5.

"We'll not raise fuel or electricity next year. But it is for the next government to decide, not the current (administration)" Minister of Finance Boediono told reporters on Tuesday.

The current government is drafting the 2005 state budget considering that the upcoming new government, expected to be formed in November, will not have sufficient time to draft the budget. But the new government has the right to make changes to the proposed budget.

After the country plunged into crisis in 1998, the government has been under pressure to reduce subsidies and create a healthy fiscal system. This year, the government backed away from its plan to raise utility prices, citing possible political tension during the 2004 election year that could be exacerbated by price hikes.

Boediono did not, however, make clear the reason why utility prices ought to be maintained at current levels next year, but the announcement came as President Megawati Soekarnoputri prepares to run for a second term in office. She is trailing in opinion polls by more than 20 points for the July 5 election, with a possible runoff in September.

Elsewhere, Boediono said that the economy was projected to grow by around 5 percent next year, higher than this year's estimate of 4.8 percent. Meanwhile, inflation is projected to decline to 5 percent, compared to 6.5 percent estimated for this year.

The other 2005 budget assumptions include a budget deficit of less than 1 percent of gross domestic product (GDP), compared to this year's estimate of 1.2 percent of GDP; and a debt ratio of less than 60 percent of GDP.

The government projected Bank Indonesia benchmark interest rates to further decline to around 7 percent next year, from the current 7.32 percent level.

Boediono said that the budget draft will still have to be discussed again by the Cabinet at the end of next month before submitting it to the House.

Separately, Martin Panggabean, an economist with Bank Mandiri, said that the government's 2005 macroeconomic assumptions were overly optimistic particularly in the growth and inflation areas.

He pointed out as an example that an inflation rate target of 5 percent next year could only be achieved if the rupiah strengthened significantly.

"Even if the exchange rate stays flat, inflation could only reach around 5.8 percent," Martin.

Martin projected inflation next year to reach around 6.1 percent, while economic growth is at between 4.5-4.7 percent.