Govt remains cautious over subsidy cut

The Jakarta Post, Jakarta

While giving assurances that there would be no populist measures in its economic policies, the new government remains cautious over whether or not to cut fuel subsidies in the near future.

Against a backdrop of a tight budget, every policy adopted would have to be prudent and accountable, thus providing no room for populist policies, Coordinating Minister for the Economy Aburizal Bakrie told a breaking-of-the-fast forum on Monday.

"I can assure you that there will be no populist policies from this government," Aburizal said before the forum, which was attended by top businessmen and executives of state companies, as well as some ministers.

When pressed afterwards, he stopped short, however, of saying that the remarks could be interpreted as meaning there would be a cut in fuel subsidies. The fuel subsidy policy is one that many regard as populist, with the government keeping the subsidy system in place despite the fact that it is bleeding the treasury dry and that much of the subsidy spending is actually enjoyed by the well-off.

"We haven't got to that stage as yet," Abdurizal said.

The government, with the consent of the legislature, has set aside Rp 59.2 trillion this year for fuel subsidies -- a more than 300 percent increase over the earlier target of Rp 14.5 trillion, due to soaring global oil prices.

Despite being an oil-exporting country, Indonesia imports about one fifth of the crude oil used for fuel consumption at home and sold at subsidized prices.

This means the higher the oil price goes, the more money the government has to spend on subsidies.

This has revived the debate on cutting fuel subsidies by applying a more targeted, pro-poor subsidy scheme -- which could in turn help ease the burden on the state budget while at the same time making sure the money goes where it is needed.

President Susilo Bambang Yudhoyono also said during the election campaign that he would not hesitate to take tough measures, including cutting subsidies, if that was in the best interests of the country.

To date however, no decision has been made on the issue.

Cutting the subsidies, which would push domestic fuel prices higher, is a sensitive issue as it affects almost all elements in society. Higher production costs for business and operating costs for public transportation are among the effects that a decision to cut subsidies would have.

Elsewhere, Aburizal acknowledged the problems the costly subsidies were causing for the state budget, but insisted that a cut in subsidies would first require a thorough analysis to minimize the adverse impacts.

Instead, he suggested the use of more gas and coal as alternative sources of energy, although it would require time to provide the necessary infrastructure.

"Gas is a lot cheaper (than oil). If we can promote using it, the public would not need a subsidy as the price is already cheap. So, in that sense, we would reduce fuel subsidies by reducing our dependency on oil," he said.

"But, that's not a job for the first 100 days. It will be a three-year job for us to convert from oil to gas and coal."