Higher fuel prices won't hurt business: VP

Higher fuel prices won't hurt business: VP

Wahyoe Boediwardhana
The Jakarta Post/Denpasar, Bali

The government is upbeat that higher fuel prices as a result of
the planned subsidy cut will not significantly reduce local
businesses' competitiveness with global players, who are also
feeling the pinch of international oil prices.

Even with higher global oil prices, countries that do not
subsidize fuel still enjoy healthy economic growth, as their
private sector can cope with the problem and survive, Vice
President Jusuf Kalla says.

"Higher fuel prices will not reduce the competitiveness of
local industry in the global market. Businesspeople in other
countries are experiencing the same problem as us. If they can
survive, why can't we?" Kalla said after Friday prayers.

"The textile industries in China, Malaysia and India are also
in the same plight due to the rise in their production costs as a
result of higher fuel prices.

"There is no reason for our industry to complain about that,"
he said.

The government has hinted it might raise fuel prices on Oct. 1
to ease pressure on the state budget following a ballooning fuel
subsidy, which is estimated to cost over US$10 billion by the end
of the year.

The fuel subsidy keeps the price of gasoline, diesel fuel and
kerosene well below international prices.

Fuel costs for industry are estimated to account for 20
percent to 30 percent of total production costs.

However, the level of burden local industry will soon have to
bear due to the rise in fuel prices remains unclear, since the
government has yet to officially announce the percentage of
increase.

Minister for National Development Planning Sri Mulyani has
indicated that the rise will be around 50 percent. However, Kalla
has refused to name an exact figure, saying it was also possible
that prices could go up 70 percent, 80 percent or 100 percent,
depending on final government calculations.

The government is waiting for guidance from the House of
Representatives on the issue.

In a recent meeting between the Ministry of Finance and the
House's budget commission, it was decided that the government
would have two options to choose from regarding the subsidy
amount.

The first option sets the fuel subsidy at Rp 89.2 trillion
with a state budget deficit of below 1 percent of gross domestic
product (GDP), while the second option sets the fuel subsidy at
Rp 113.7 trillion with a deficit of 1.7 percent of GDP.