Govt to shoulder higher fuel subsidy in 2003 budget

Govt to shoulder higher fuel subsidy in 2003 budget

The Jakarta Post, Jakarta

The government would have to allocate a much greater amount of
money to cover the fuel subsidy this year because of higher
prices of oil in the international market, says a senior
government official.

This could threaten the 2003 state budget deficit target.

Director General of Oil and Gas at the Ministry of Energy and
Mineral Resources Iin Arifin Takhyan said on Wednesday that
expenses for the fuel subsidy this year would double to around Rp
25.6 trillion (US$3.08 billion) compared to Rp 13 trillion
allocated under the current budget.

Iin said the government only had the capacity to cover up to
Rp 20 trillion.

"This means that we'll have a higher deficit," he told
reporters.

The government initially planned to further eliminate the
subsidy on various fuel products early this year. The Rp 13
trillion fund was meant only to cover the subsidy for kerosene, a
fuel used mainly by low-income families for cooking.

But widespread protests from the public in January, forced the
government to delay the cut in the subsidy.

The current state budget assumed an average oil price of $22
per barrel, but because of various uncertainties in the global
market including the recent war in Iraq, the oil price in the
international market during the first half of the year was much
higher at an average level of $26.15 per barrel. According to one
estimate, the average oil price in the second semester would
average $24 per barrel. By maintaining the subsidy and because of
the higher international oil price, the state budget would
consequently have to cover a higher subsidy.

Officials from the Ministry of Finance could not be reached to
confirm whether the 2003 state budget would suffer a higher
deficit than the planned 1.8 percent of gross domestic product.

Minister of Finance Boediono has been trying hard to limit the
budget deficit in a bid to help create a healthy fiscal
condition, a necessary factor to help speed up the country's
economic recovery.

Boediono has targeted this year's deficit to be contained at
below 1.8 percent of GDP, so that next year's deficit could be
further cut to around 1 percent of GDP.

There is a possibility that the deficit would not deviate much
from the targeted figure considering that the rapid appreciation
of the rupiah and lower central bank interest rate would reduce
the government's expenses in servicing domestic and overseas
debts. In addition, the higher international oil prices should
also provide the government with higher oil revenue.