IMF does not object to delay in fuel price hikes: Kwik

IMF does not object to delay in fuel price hikes: Kwik

JAKARTA (JP): The International Monetary Fund (IMF) did not
object to the government's decision to delay fuel price hikes,
Coordinating Minister for Economy, Finance and Industry Kwik Kian
Gie said.

"When we consulted them (IMF), they showed no reaction," Kwik
said on Saturday following a cabinet meeting of economic
ministers at the presidential office.

Kwik said although the delay had been set for an indefinite
period, the government would set a deadline.

"If we still don't raise the fuel prices after three months,
it will be fatal," Kwik said.

Kwik said if the delay lasts for more than three months, the
government would have to cut its expenditure on development.

"Therefore, damaged bridges and bad roads will remain
unrepaired," he said.

He said the government planned to conduct a weekly evaluation
on whether to continue the delay.

The government canceled plans to raise fuel prices by 10
percent on Friday, one day ahead of the scheduled hikes, amid
threats of mass demonstrations from various parties protesting
the planned increases.

The threats reminded people to events that took place
following the government's decision to raise fuel prices in May
1998. The fuel price hikes then sparked violent riots that led to
the resignation of former President Soeharto.

The fuel price hikes are part of the agreement between the
Indonesian government and the International Monetary Fund (IMF)
as part of the efforts to cut fuel subsidies for the April-
December 2000 fiscal year.

By increasing fuel prices, the government expected to reduce
fuel subsidies to Rp 22.4 trillion (US$2.9 billion) from an
estimated Rp 27.5 trillion during the last fiscal year, which
ended on March 31.

Chairman of House of Representatives' Commission VIII, Irwan
Prayitno agreed that a delay longer than three months would be
detrimental to the state budget.

He suggested a delay of one to three months. At least one
month is needed for the government to prepare the public for the
increases.

"The government must use the delay period to raise the
public's awareness and understanding of the importance of the cut
in fuel subsidy," Irwan told The Jakarta Post over the weekend.

Last week, the House's Commission VIII requested the
government to delay the fuel price hikes, saying that the public
were not prepared.

He said the public's strong objection to subsidy cuts stemmed
from misperception that fuel subsidies were beneficial mostly to
the poor.

"However, we know that most of the fuel subsidies go to car
owners who are in fact not eligible for subsidy," Irwan said.

He added that fuel costs in industries made up an average of
only 2.2 percent of their total operating costs. Hence, a slight
increase in fuel prices should not jerk up the prices of consumer
goods.

Irwan further said that the government was not prepared to
distribute the fuel subsidies to the poor and inefficiencies in
the distribution was very possible.

The government initially planned to introduce a coupon system
for the poor and public transportation owners to buy fuel at
cheap prices but it later replaced the coupon system with a cash
transfer system.

Under the cash transfer system, the government would send Rp
495.8 billion in subsidy funds to the poor and to land
transportation owners through post offices to help them afford
fuels at new prices.

Tini Hadad, a member of the board of directors at the
Indonesian Consumers Agency (YLKI), agreed that the government
should boost publications on its plans to cut fuel subsidies.

"It's important that the people understand why we need to cut
our subsidy spending," Tini said over the weekend.

She said she understood the people's strong objection to the
subsidy cut as most of the people were still enduring economic
hardships.

Tini added that inefficiencies in state-owned oil and gas
company PT Pertamina had made the public reluctant to pay more
for fuel.

Tini declined to suggest how long the government should
delay the increase in fuel prices, saying during the delay period
the government should focus on preparing accurate data on the
people eligible for subsidy.

The present fuel subsidy scheme is based on data from the
social safety net programs of 1999, which counted 17.4 million
poor families. (bkm/cst)