House cool on planned price hikes

House cool on planned price hikes

JAKARTA (JP): The House of Representatives responded coolly on
Friday to the government's planned fuel and power price hikes,
with House Speaker Akbar Tandjung saying the move was
"understandable" due to the severe budget deficit.

Akbar was quick to add, however, that further explanation from
the government was needed to prevent any ramifications from
raising fuel and power prices.

"It does not mean that we fully agree with the move. The House
needs further explanation from the government," Akbar said.

Indonesian Democratic Party of Struggle (PDI Perjuangan)
legislator Pramono Anung also stressed the need for a clear
explanation from the government.

"It should be clearly stated ... how much will we get from the
hikes and how the government will disburse it to the public,"
Pramono, a member of House Commission VIII for the environment,
research and technology Affairs, told The Jakarta Post.

Economists have warned that the hefty fuel and power price
rises set by the Cabinet for next month are likely to hit
economic growth and send inflation soaring to 13 percent.

But President Abdurrahman Wahid said the government had to
increase fuel prices and electricity rates, as well as the value
added tax (VAT), because the increases were tied to the
International Monetary Fund (IMF)'s US$5 billion bailout program
for the country.

"We are tied to the IMF rules that say we should cut the
subsidies, so from now on the subsidies will gradually be phased
out," Abdurrahman said after Friday prayers at the presidential
palace's Baiturrahim Mosque.

The Cabinet decided on Thursday to cut subsidies and raise
fuel and power prices by 30 percent and 20 percent, respectively,
in June, as well as to increase the VAT by 2.5 percent in July.
The moves are designed to plug a budget deficit that is
threatening to reach 6 percent of gross domestic product (GDP).

The price hikes are the outcome of the finance ministry's
revision of the 2001 budget at the behest of the IMF, which has
demanded steps be taken to bring the deficit back to 3.7 percent
of GDP as originally projected.

The IMF has said it will not release a stalled $400 million
loan tranche unless the budget is revised and approved by the
House.

The revised budget will be presented to the House on Monday
for its approval, but analysts have predicted objections from
legislators and a lengthy debate.

The head of the House's budget affairs committee, Benny
Pasaribu, said the timing of the price rises needed to be
reviewed.

"The policy itself is unavoidable, but given the prevailing
political and social conditions we have to question the timing,"
Benny said.

He suggested subsidy cuts and corresponding price rises be
phased in over several years, with no more than one price
increase per year.

Benny acknowledged the IMF stance that fuel and power
subsidies should be phased out, but he said the move should be
cushioned with welfare and income subsidies for the poor.

Responding to a complaint from a businessman on Friday that
the price hikes would hit the ordinary people, Abdurrahman said:
"If you think your business will suffer because you cannot
compete, then you have to change your way of doing business so
that you can compete." (dja/byg)