IMF 'flexible' on subsidy issues
JAKARTA (JP): The International Monetary Fund (IMF) is prepared to be flexible in ongoing negotiations with the Indonesian government on subsidy issues, including in the fuel sector, an IMF official said yesterday.
IMF Asia-Pacific director Hubert Neiss said the world body could tolerate some allotment of subsidies when it was based on strong extenuating considerations and would not endanger the country's budgetary health.
"In general, the IMF is flexible on subsidies. However, we also have to take into consideration that the budget deficit can not be allowed to explode," Neiss said after meeting with Vice President B.J. Habibie at Merdeka Selatan Palace.
Accompanied by IMF officials Prabhakar Narvekar and Kadhim Al- Eyd, Neiss reported to Habibie on his team's progress in its negotiations with Indonesian officials on the country's economic reforms.
President Soeharto has repeatedly said the government would likely increase fuel prices starting in April and reduce the government subsidy, estimated at Rp 10.07 trillion for the 1998/1999 fiscal year.
But the government appears cautious in abolishing politically sensitive subsidies, especially on fuel and basic food commodities including rice.
Under its agreement with the IMF, the government would raise fuel prices to reduce its subsidies, except for prices of kerosene and diesel fuel, which will be kept to a minimum to protect interests of the poor and public transportation services.
"If there are difficulties, both sides will make an effort to overcome them," Neiss said.
Kerosene is sold for Rp 280 per liter domestically, although its import price is Rp 1,300. Diesel oil sells for Rp 380, compared to its import price of Rp 1,030.
The country is expected to import at least 1.5 million kiloliters of kerosene, and imports of diesel oil will reach 7.1 million kiloliters for this fiscal year,
"So we have to wait carefully, how much subsidies and to what extent subsidies can and should be maintained, and to what extent we have to contain the budget deficit. This is not an easy issue," Neiss said.
He hoped his team would be able to conclude the negotiations with the government and said IMF's board of directors would need about two weeks before making a final decision on Indonesia's status.
"I hope we can continue to make fast progress, conclude early and that a good program will support it," he said.
When asked about the short-term target on Indonesia, the IMF senior economist replied: "The immediate objective of the program is to restrain inflation and to strengthen the rupiah, not only to stabilize the rupiah where it is, but to get to a more appreciated level". (prb)