Govt to allocate higher fuel subsidies for 2004

Govt to allocate higher fuel subsidies for 2004

Fitri Wulandari, The Jakarta Post, Jakarta

Legislators and the government agreed on Tuesday to allocate
Rp 14.5 trillion (US$1.73 billion) for fuel subsidies in next
year's state budget.

The amount is higher than the initial government proposal of
Rp 12.7 trillion and also higher than the Rp 13.2 trillion set
aside for this year's budget.

The decision was reached during a meeting between the House
budget committee and senior officials from the Ministry of
Finance and the Ministry of Energy and Mineral Resources. The
meeting was to deliberate the government's 2004 state budget
proposal.

Director General of Oil and Natural Gas, Iin Arifin Takhyan
said that the higher budget allocation for fuel subsidies was
needed because of expected increases in oil prices. The average
international oil price in the 2004 state budget is now set at
$22 per barrel, compared to the government's earlier proposal of
$21 per barrel.

But Iin added that the decision had yet to be formally
approved by the House plenary session.

He said the government could earn windfall profits from the
increasing oil prices to cover higher fuel subsidies.

"Fuel subsidies are up because oil prices have changed," he
told reporters after meeting with lawmakers.

By maintaining fuel subsidies, Iin asserted there will be no
increase in fuel prices in 2004.

Previously, Minister of Energy and Mineral Resources Purnomo
Yusgiantoro said subsidies on various fuel products except
kerosene, should not be scrapped next year as stipulated in Law
No. 25/2000 on the 2000-2004 National Development Program.

Purnomo said ending fuel subsidies next year would be
difficult considering the political situation in the country,
which is set to hold its first direct general election during the
year.

Earlier this year, the government tried to cut fuel subsidies
to bring the price in line with international prices. But it was
canceled due to widespread protests.

However, maintaining fuel subsidies would not please
international donors who have pushed the government to end the
costly policy.

Scrapping fuel subsidies is deemed important to put state
finances in order to pull the country out of economic crisis.

The increasing fuel subsidies would also put burden on the
already tight state budget.

However, the head of Fiscal Analysis at the Ministry of
Finance Anggito Abimanyu said higher fuel subsidies would not
widen the deficit in the 2004 state budget.

Anggito said as quoted by Tempo Interactive the government
would reduce spending in other areas of the budget such as
electricity or food.

During the Tuesday meeting, lawmakers and government officials
also agreed to set domestic fuel consumption target at 60 million
kiloliters for next year.

The 2003 state budget set domestic fuel consumption at 58.2
kiloliters.

Iin said the government had projected higher domestic
consumption on the back of economic and population growth.