Govt sets aside money for fuel subsidy
Tony Hotland, The Jakarta Post, Jakarta
The government will set aside the fuel subsidy cut of Rp 3.9 trillion (US$426.69 million) in the state budget, so that the next government can retrieve the funds and avert fuel price hikes this year.
Ministry of Finance's head of analysis on economics, finance, and international cooperation agency (Bapekki) Anggito Abimanyu said on Friday that the funds would be reserved under the "other routine expenditures" category.
"The money will be put aside in the so-called 'policy measures of fuel' section. So, the government can later use the money if the amount decided for the fuel subsidy turns out to be insufficient," he told reporters here.
Anggito added that the funds would not be used for any other purposes besides the fuel subsidy and that its use was in the authority of the next government, which is expected to be sworn in on Oct. 20, to decide.
The budget committee of the House of Representatives has decided to cut the fuel subsidy for this year to Rp 59.2 trillion from the government's proposal of Rp 63 trillion.
The walloping amount of the subsidy resulted from the inflation of the global oil prices throughout the year, which several weeks ago made an historic peak at above $50 per barrel.
The 2004 state budget assumes an oil price average of just $22 per barrel and allocates Rp 14.5 trillion for the fuel subsidy. In the revised 2004 state budget, the government raised the assumption to $36 per barrel, which resulted in the increase of the fuel subsidy expense to Rp 63 trillion.
Due to the cut, the committee offered the new government three options: raise fuel prices, reduce fuel consumption or boost efficiency in the domestic use of fuel.
"It's completely up to the next government how they want to exercise these options ... whether or not they want to pick one or combine them, including raising fuel prices this year or next year," said Anggito when asked if the subsidy cut automatically meant hikes in fuel prices this year.
The government has long been urged to review the fuel subsidy mechanism by reducing it to avoid a possible fiscal disaster and make sure that only poor people benefited from the subsidy. Many also believe that much of the subsidized fuel is being smuggled to neighboring countries.
Experts have said that the reduced fuel subsidy should be balanced out by giving people more affordable education and health care.
The fuel subsidy is earmarked at Rp 19 trillion for the 2005 fiscal year with oil prices assumed at $24 per barrel and the rupiah at 8,600 per U.S. dollar.
Anggito also said that the fuel subsidy cut would not affect the revised state budget deficit of Rp 26.27 trillion or 1.3 percent of the gross domestic product.
Elsewhere, Anggito said the government planned to establish a financing company for public housing next year.
"We've allocated Rp 1 trillion for this purpose in the 2005 state budget, it's called a secondary mortgage facility.
"But this doesn't mean that we'll erase the subsidy for the development of modest and clean housing as we've also allocated some Rp 200 billion for that purpose," said Anggito.