House askes SBY to mull fuel hike
House askes SBY to mull fuel hike
Dadan Wijaksana, The Jakarta Post/Jakarta
The incoming government should consider raising fuel prices at
home later this year in a bid to cut losses caused by the
burgeoning cost of the nation's fuel subsidy that could cripple
state finances, the House of Representatives state budget
commission said.
The recommendation emerged during a meeting late on Wednesday
between the commission and Minister of Finance Boediono to
conclude the revision of the 2004 state budget.
The revised state budget allocated a whopping Rp 59.2 trillion
(about US$6.55 billion), a 307 percent increase from Rp 14.5
trillion earmarked in the original state budget, to cover the
fuel subsidy, which has inflated due to the current surge in
crude oil prices.
The revised budget assumed an oil price average of $36 per
barrel for this year, compared to the $22 per barrel rate
previously assumed. Currently oil prices are at around $45 a
barrel.
The new subsidy, however, was slightly lower than the Rp 63
trillion figure proposed by the government in August when it
first started budget revisions.
The commission said in order to reduce the cost of the subsidy
from Rp 63 trillion to Rp 59.2 trillion, the government should
consider three options: Raising fuel prices starting in November,
reducing domestic fuel consumption volumes, and launching tough
efficiency measures.
The meeting had not finished at 10.30 p.m.
The fuel subsidy maintains fuel prices at home at low levels
by international standards, keeping fuel and transportation costs
affordable for the country's poor. Cheap gasoline and kerosene,
however, also encourages people to consume greater amounts of
fuel, cutting back the margins that can be exported overseas.
High oil prices have raised concerns over the impact of the
huge subsidy on the state budget and the overall economy.
Some analysts have suggested the government start cutting down
the subsidy and raise fuel prices to avoid a possible fiscal
disaster, and also target the subsidy to the poor.
At present both rich and poor can take advantage of cheap fuel
prices and some subsidized fuel products are also smuggled to
neighboring countries.
The subsidy's critics say the huge subsidy fund would be
better allocated for financing economic development programs.
Susilo Bambang Yudhoyono, who is widely expected to become the
next president on Oct. 20, has said during his election campaign
he would have no option than to cut back on the subsidy if oil
prices remained stubbornly high. He also vowed to ensure that
such policies would not have a severe impact on low income
people.
It remains unclear whether Susilo's new government and new
lawmakers in the House of Representatives would agree to the
recommendations of the current budget committee.
Meanwhile, the budget commission earlier in the day
completed debates on the 2005 state budget draft, including
allocation for the fuel subsidy, which has been earmarked at Rp
19 trillion.
The amount of allocated for the subsidy, much less than
earmarked for this year, was based on assumptions that oil prices
would fall to around $24 a barrel next year. Many critics have
said this assumption is unrealistic because crude prices have
been averaging at about $45 a barrel during the past couple of
months.
The new government and lawmakers are also expected to revise
this budget.
Eyebox
State Budget for 2004 (revision), 2005
---------------------------------------------------
Assumptions 2004 (revised) 2005
---------------------------------------------------
Growth (%) 4.8 5.4
Inflation (%) 7.0 5.5
Exchange rate (Rp/S) 8,900 8,600
3-month SBI (%) 7.5 6.5
Oil price ($/barrel) 36 24
Oil output (mbd) 1.072 1.125
----------------------------------------------------
Source: Ministry of Finance