House approves budget with $8b in fuel subsidies
Urip Hudiono, The Jakarta Post, Jakarta
The House of Representatives finally approved the government's revision of the 2005 state budget on Tuesday after three months of deliberation that nearly clouded the country's first semester financial position.
The House's green light allows the government to immediately disburse the much needed Rp 11 trillion (US$1.14 billion) assistance fund for low-income families, a Rp 13.3 trillion fund for rebuilding tsunami-stricken Nanggroe Aceh Darussalam and Nias and Rp 76.5 trillion for the fuel subsidy.
However, global oil prices which touched a record high of US$60 a barrel on Monday could take the revision back to square one, as fuel subsidies may likely balloon again, exceeding the agreed allocation.
In a plenary session on Tuesday, the House's 11 factions approved the budget revision, even though several notes were attached for the government to address.
With less than 100 House members, of a total of 550, attending the plenary session, Tuesday's event served as a mere "ceremonial" approval. The House's Budget Commission, tasked to deliberate the revision, had officially given its approval last week.
The House had been using the deliberation of the budget revision, submitted on March 23, to strictly monitor the implementation of the government's decision to raise domestic fuel prices by an average of 29 percent starting March 1.
The fuel price hike was meant to ease fuel subsidies -- which had risen in line with soaring global oil prices -- to relieve the burden on the state budget, and to allocate a fund for the poor. The government also proposed additional funds to rebuild Aceh and Nias, and address changes in the budget's macroeconomic assumptions accordingly.
Economic growth was forecast to reach 6 percent, the rupiah exchange rate set at 9,300 per U.S. dollar, the inflation rate at 7.5 percent and the price of oil at $45 a barrel.
Indonesia's oil production and the central bank's benchmark interest rate, meanwhile, were unchanged at 1.125 million barrels per day and 8 percent, respectively.
One of the issues in the budget revision highlighted by the House was the possibility that fuel subsidies would keep going up due to steadily rising global oil prices and a weak rupiah, both affecting the country's oil import costs.
Chairman of the Budget Commission Emir Moeis said on the sidelines of the plenary session that the fuel subsidy for the year would likely exceed its agreed allocation.
"I assume the fuel subsidy could reach up to Rp 90 trillion by the end of the year, particularly if we consider several forecasts saying global oil prices could reach $100 a barrel by 2008," he said.
The probability of a higher subsidy is imminent, Emir added, as out of the Rp 76 trillion fuel subsidy, Rp 32 trillion has been used up for oil imports.
With Idul Fitri, Christmas and New Year holidays at the end of the year, domestic fuel consumption is likely to be higher in the second semester.
To overcome such a problem, Emir urged the government to raise the country's oil production and be more transparent in the fuel subsidy disbursement, including in auditing fuel production costs of state oil and gas firm PT Pertamina.
He explained that the government could save up to Rp 29 trillion if it increases Pertamina's efficiency in providing n annual fuel consumption of 59 million kiloliters.
Minister of Finance Jusuf Anwar said the approved revision would not be final, adding "The budget can be revised again in the second semester when the government submits its first semester budget realization report."
He further said the government was still upbeat that the soaring global oil prices would have little effect on Indonesia's economic growth.
"I still see it as being able to reach 6 percent by the end of the year," he said. "We have to be optimistic about it."