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)