House decides to OK extra fuel subsidy allocation

Dadan Wijaksana, The Jakarta Post, Jakarta

The House of Representatives endorsed a revision to the 2004 state budget law on Tuesday despite the fierce resistance of lawmakers from the Reform faction, who opposed the huge fuel subsidy.

Under the revised law, the fuel subsidy is set at Rp 59.2 trillion (US$6.43 billion), plus Rp 3.6 trillion in extra funds should the next government decline to raise fuel prices latter this year as recommended by the House.

In total, the state budget allocates some Rp 63 trillion to cover the fuel subsidy for 2004 amid soaring oil prices, which have forced the government to increase the average oil price assumption in the budget to $36 per barrel from $22 per barrel in the original budget. Oil prices have now surged to over $50 per barrel.

The massive fuel subsidy allocation -- almost three times the total foreign loans the government has borrowed during the year, which stand at Rp 21.7 trillion -- upset some legislators, notably from the Reform faction.

"An increase of more than 300 percent in the fuel subsidy does not make any sense," Nurdiati Akma, the faction's spokeswoman, said while reading a statement from the faction.

Not only has the subsidy burdened the already cash-scrapped budget, but it has also been the source of injustice among the public, with the subsidy being largely enjoyed by car owners, not the poor, she said.

In addition, the current fuel policy encourages the smuggling of fuel, Nurdiati said. "Those who benefit from a fuel policy like this are those who smuggle the subsidized fuel products to overseas."

"Taking all of this into account, the Reform faction expresses its objection to the plan, and therefore rejects the revision to the 2004 state budget bill," she said to applause from supporters.

A.M. Fatwa, who presided over the meeting, called for a brief recess after Nurdiati's speech to allow for lobbying.

After some 15 minutes of lobbying, legislators from the Reform faction agreed to the passage of the bill into law, only submitting a note of objection.

The next government will be sworn in on Oct. 5, with the new House members to be sworn in on Oct. 20. Resolving the fuel subsidy issue will be one of the most difficult tasks faced by Susilo Bambang Yudhoyono, who is likely to become the country's next president, as raising fuel prices would be a politically sensitive measure, while maintaining fuel prices at a time of surging oil prices could lead to fiscal disaster. The fact that Susilo's political party, the Democratic Party, holds a small number of seats in the House will likely make this job even tougher.

Meanwhile, the remaining eight factions at the meeting, although most expressed some objections to the massive fuel subsidy, approved the bill.