IMF warns public and business to be ready for new price hikes
IMF warns public and business to be ready for new price hikes
A'an Suryana, The Jakarta Post, Jakarta
The International Monetary Fund "can understand" the government's
decision to revise its recent price hikes policy, but warned that
the public and businesses would eventually have to be confronted
with the reality of higher fuel prices and electricity tariffs if
it wanted to fix the ailing economy.
Visiting IMF senior adviser Daniel Citrin was quoted by Antara
as saying on Tuesday that the delay was only a "temporary"
measure to help keep prices at home stable.
He was speaking on the sidelines of the Consultative Group on
Indonesia (CGI) donors meeting on the resort island of Bali.
The government on Monday decided to reduce the prices of
automotive diesel, industrial diesel, kerosene for industries and
to provide an electricity discount for industries and businesses.
Prices of other fuel products remain unchanged.
The move followed nationwide protests over the government's
decision earlier this month to simultaneously increase fuel
prices, electricity tariffs and telephone charges by cutting
expensive subsidies and help ailing state utilities. The phone
charge increases were delayed last week.
Previous governments have provided expensive subsidies on fuel
and electricity, creating a huge burden on the state budget.
But after the economy plunged into crisis in 1998, the
government has no option other than to eliminate the subsidies to
maintain a healthy budget and create sustainable economic growth.
The IMF, which is providing a multi billion dollar bailout
package for the country, has argued that the expensive subsidies
had largely benefited the rich and large businesses. It said the
subsidies would be better off being allocated for financing
infrastructure facilities and other development programs that
would benefit the overall economy.
Many analysts have also said that the costly fuel subsidies
had only benefited fuel smugglers.
The IMF also plays an important role in helping the country
maintain international financial support.
The policy u-turn was made on the eve of the CGI meeting,
which will decide on a fresh loan facility to help plug the 2003
state budget deficit.
The country's traditional donors are expected to question the
government's latest decision during the two-day meeting.
The government has said the new fuel price level would be
maintained until international oil prices, which have surged to
around US$30 per barrel due to concern over the U.S.'s planned
attack on Iraq and the strikes in oil exporting country
Venezuela, had stabilized.
The soaring international oil prices would markedly increase
fuel prices at home if the government did not provide subsidies.
The government said the delay in the fuel price hikes and
discount for electricity tariffs would cost around Rp 1 trillion
(around $112 million) per month. The government would use
contingency funds in the state budget to cover the costs.
But it added that the 2003 state budget deficit would still be
kept at a healthy level of around 1.8 percent of gross domestic
product as originally projected. The government would discuss
with the House of Representatives over the possibility of using
windfall profits from oil sales to replenish the contingency
fund.
Meanwhile, Center for Strategic and International Studies
(CSIS) economist Hadi Soesastro said the revision of the utility
price hikes was strong proof that the government lacked the
strength to push through tough economic reforms.
He said the delay in the fuel price increase would not
necessarily bring domestic prices at home lower, particularly on
goods or services controlled by monopolies.
He criticized the government for failing to clearly explain to
the public the importance of cutting the subsidies.