Govt ready to bite fuel hike bullet: VP

Govt ready to bite fuel hike bullet: VP

Muninggar Sri Saraswati, The Jakarta Post, Jakarta

The Vice President has said that government was ready to accept
the political risks associated with the decision to increase fuel
prices, reiterating that budgetary sustainability would come
under even greater threat if they were not raised soon.

Vice President Jusuf Kalla said on Saturday that fuel price
hikes were necessary to avoid fiscal disaster amid soaring
international oil prices.

"We are ready to face the risk of being rejected (by the
public). But not everyone opposes the policy," Kalla told
reporters after addressing the 2006 Sulawesi Expo in Jakarta.

Several Cabinet members have said that fuel prices will have
to be raised early next month, possibly by an average of 50
percent or more, to help bring fuel subsidy spending down to a
sustainable level. The exact date for the hike and the
percentage increases involved will be decided later by President
Susilo Bambang Yudhoyono after consultation with the House of
Representatives.

Although an oil-producing country, Indonesia has become a net
oil importer due to declining oil production at home. As a
result, the country needs to import some of its oil needs for
refining into fuel products, a situation that has inflated the
cost of covering fuel subsidy spending. Fuel prices at home are
among the lowest in Asia as a result of the government subsidies.

Kalla said that the government's financial position was being
undermined due to the rising cost of the fuel subsidies.

"If we don't raise domestic fuel prices, the government will
have to pay out between Rp 130 trillion (about US$13 billion) and
Rp 140 trillion (for fuel subsidies this year). We cannot afford
it," Kalla said.

By reducing fuel subsidy spending, the government will have
more money to finance infrastructural development around the
country, he said.

"If fuel prices are not increased, the entire budget will only
be capable of paying for the subsidies and repaying foreign
loans. Now, we can choose between developing the country or
burning fuel on the streets," Kalla argued.

He said that with given the stark nature of the choices
available to the government, many people understood that fuel
prices had to be increased.

"There are also many people who agree with the policy. And we
are ready to provide compensation (to the poor)," he added,
pointing to the plan to provide Rp 100,000 in cash per month to
each poor family. The Central Statistics Agency (BPS) has said
that about 15.5 million underprivileged families would be
eligible to receive the cash payments.

The government has said it will start making the payments
early next month.

President Susilo Bambang Yudhoyono has said that fuel prices
will be increased after mechanisms to compensate the poor have
been put in place, and full compensation had been paid to all
those entitled for the previous increase in fuel prices.

Increasing fuel prices in Indonesia is always a politically
sensitive move, although the government's decision to increase fuel prices in
March last year by an average of 29 percent was not followed by
massive protests as occurred in 1998, when fuel price increases
contributed to the fall of former authoritarian president
Soeharto.