House divided over govt plans on fuel price hike in 2001

JAKARTA (JP): Factions at the House of Representatives are divided over the government's politically-sensitive plans to further raise fuel prices next year.

The Indonesian Democratic Party of Struggle (PDI-P), the largest party in the House, supported the government's plans to gradually reduce fuel subsidies which in turn would raise the price of the commodity.

"In principle, the PDI-P faction agrees with the (government) plans to gradually reduce fuel subsidies," said party spokesman Max Moein during a plenary session on the government's 2001 state budget proposal.

Citing research work of the University of Indonesia, PDI-P said that the fuel subsidy had mostly benefited "the haves."

After increasing fuel prices by an average 12 percent earlier this month, the government plans to raise the price of the fuel by another 20 percent in April next year to reduce the burden on the state budget.

The plan to reduce the fuel subsidy is part of an agreement with the International Monetary Fund, which is providing cash in a multi billion dollar bailout to help revive the ailing economy.

But raising fuel prices is a politically sensitive issue which could trigger social unrest in the country.

The Golkar Party, also a large faction in the parliament, is opposed to the plans.

Golkar spokesperson Hamka Yamdhu said that raising fuel prices would ignite inflation which would be bad for the economy and the people.

"The Golkar faction supports a policy of a continuation in providing fuel subsidies...," Hamka said.

Instead, Golkar demanded the government boost efficiency in managing the country's oil resources and to take energy conservation measures.

Hamka also said that Golkar insisted that subsidies for other commodities including rice, electricity and credit for the poor should be maintained.

Although PDI-P supported the plans to raise fuel prices, the faction demanded the government explain what measures would be taken to control inflation.

The government unveiled the 2001 state budget draft earlier this month.

The budget assumes an exchange rate of Rp 7,300 per U.S. dollar, economic growth of 4.5 percent, inflation of 7 percent, and an oil price of US$22 per barrel.

Legislators questioned the government's budget assumptions particularly on the exchange rate level.

"We demand an explanation. What is the basis used by the government to come to this assumption? What are the measures to be taken by the government to reach this assumption?," Hamka said.

Economists and legislators have earlier said that the exchange rate assumption was unrealistic given the unstable political condition at home, and the fact that the rupiah had been hovering at more than Rp 8,000 per dollar.

The rupiah ended trading late Monday at Rp 8,875 per dollar compared to Rp 8,922 late on Friday.

On the outlook for the economy, the PDI-P faction warned the government of the grim reality.

"Our economy has not yet recovered not only because of the unresolved economic (problems) ... but also because of non- fundamental factors including government and political instability, and the absence of security and legal certainty," PDIP said.

"The climate until now is not yet conducive particularly in the area of politics and security. Bombs have exploded in various places, unrest has occurred in several areas, and people continue to hold demonstrations in Jakarta and other places."

PDIP said that the country could only enjoy economic recovery if the government with the support of the House could resolve the economic problems and overcome the non-fundamental factors.

The government envisaged total revenues of Rp 243 trillion versus total spending of Rp 295.1 trillion. A deficit of around Rp 53 trillion will be covered by the sale of state assets and foreign loans.

The government is scheduled to meet with the country's traditional donors grouped in the Consultative Group on Indonesia (CGI) in Tokyo this week to seek a loan of around $4.8 billion.

Almost 70 percent of total revenue would come from domestic taxes, particularly income tax and value-added tax.

Both PDI-P and Golkar factions questioned the government regarding how it intended to reach the huge tax revenue target.

Golkar even suggested that the tax ratio be increased to 13 percent from the government assumption of 12.3 percent. (rei)