House questions big fuel subsidies in budget review

House questions big fuel subsidies in budget review

JAKARTA (JP): High international oil prices forced the
government to spend Rp 358.54 billion (US$151.5 million)
subsidizing domestic fuel in the first six months of the
1996/1997 fiscal year.

At a hearing with Minister of Finance Mar'ie Muhammad
yesterday, the House of Representatives' Budgetary Commission
questioned why the subsidy was not budgeted for earlier.

Mar'ie said the government was compelled to subsidize domestic
fuel after the country's crude oil prices rose to an average
US$19.15 a barrel on world markets in the March-August period,
far exceeding the government's projection of $16.5 a barrel.

"The fuel subsidy is not the government's desire... it
happened outside the government's control," Mar'ie said.

The hearing, which is scheduled to run until Friday, is
deliberating the 1997/1998 budget and reviewing budgetary reports
on the first six months of this fiscal year.

Mar'ie said fuel was subsidized because the Rp 8.44 trillion
from domestic sales in the first semester -- below the
government's target of Rp 8.57 trillion -- was not enough to
cover fuel production and distribution costs, which reached Rp
8.79 trillion.

Indonesia imports crude oil from the Middle East to feed most
of its refineries.

Marie said: "It is not the government's intention to change
the budget law without the consent of the House. The government
was compelled to do so because of the international oil market
and domestic fuel market mechanism."

He said one way to eliminate the subsidy was to increase
domestic fuel prices, but the government did not do this because
it would have created "economic uproars".

The government actually benefits from international oil price
rises because every $1 increase per barrel contributes Rp 630.7
billion to its revenue from crude oil exports.

The finance minister reported that for the April-September
period the government's export revenue from oil and gas reached
Rp 8.37 trillion, exceeding its original target of Rp 7.08
trillion.

If the country's crude oil prices remain steady
internationally until March next year, the government projects it
will rake in Rp 9.2 trillion from gas and oil in the second half
of this fiscal year.

Mar'ie reported the government earned Rp 24.39 trillion from
taxes in the first half of this fiscal year, or 43.6 percent of
its full year target of Rp 55.99 trillion.

It made Rp 8.71 trillion from value-added taxes in the first
half, or 40 percent of its total target of Rp 21.79 trillion.

Mar'ie said tax revenues were below target because of the
introduction of tax exemptions on several goods and services,
including cars, shipping agents and port services.

"It is expected that during the second semester of the
1996/1997 fiscal year, revenues from value-added taxes will
increase faster in line with increasing economic activities for
Christmas, New Year and Idul Fitri," Mar'ie said.

Revenues from export taxes were well below target, reaching
only 22.7 percent of the full year target of Rp 160.1 billion.
This poor result was attributed to decreasing crude palm oil
prices internationally and to reduced export tax rates on some
commodities.

On expenditure, the government's routine spending in the first
semester reached Rp 26.34 trillion, or 46.9 percent of its full
year budget of Rp 56.11 trillion.

Development expenditure in the first semester was Rp 11.78
trillion, or 34.2 percent of the full year budget of Rp 34.5
trillion. Rp 4.32 trillion of the first semester's development
expenditure was financed by foreign aid. (rid)

BoP -- Page 10

Oil prices -- Page 12