New govt has to solve fuel subsidy
The Jakarta Post, Jakarta
The ability of Susilo Bambang Yudhoyono, poised to become the country's sixth president, to take unpopular and tough decisions will be put to the test once he comes into office and has to deal with the current fuel subsidy policy.
Top officials and businesspeople agree that the subsidy policy urgently needs review, as it is ineffective and puts too heavy a burden on the state budget.
"We suggest the elimination of subsidies on bunker oil, premium gasoline and industrial diesel oil.
"The subsidies for automotive diesel oil and kerosene should be maintained for the moment, as these types of fuel are mostly used by the poor," Minister of Energy and Mineral Resources Purnomo Yusgiantoro said on Tuesday.
The current government launched several years ago a program to gradually scrap fuel subsidies, but it put the program on hold this year to prevent unrest during the elections. Fuel price increases in the past have led to protests and riots.
The government initially allocated Rp 14.5 trillion (US$1.6 billion) for the fuel subsidy this year. However, since the government is determined not to raise fuel prices despite soaring worldwide oil prices, the subsidy may more than triple from the initial figure.
In the revised 2004 state budget, currently being deliberated by the House of Representatives, the government proposed a whopping Rp 63 trillion fuel subsidy, almost equal to the Rp 69.6 trillion proposed for development spending throughout the year.
For next year's budget, the current government has proposed Rp 33.6 trillion for the fuel subsidy, at an assumed oil price of $24 per barrel. In reality, the subsidy could be much higher as there is a consensus among oil traders that the realistic price of oil will be about $40 per barrel throughout next year.
The ballooning fuel subsidy has caused concern among many members of the public, as it has hampered the government's efforts to promote education and health programs.
Critics also note the subsidy has been largely enjoyed by car owners rather the poor, and a large volume of the subsidized fuel has been smuggled out of the country.
"It (subsidy) has to be abandoned eventually, in a gradual way. It will produce more losses than benefits if we maintain the price of fuel products," Anggito Abimanyu, head of the Ministry of Finance's Agency for Analysis of Economics, Finance and International Cooperation, said on Tuesday.
"The new government, including its economic team, must dare to make unpopular decisions, such as raising fuel prices," said Sofjan Wanandi, chairman of the National Economic Recovery Committee.
Susilo pledged earlier in a televised debate to apply a more targeted and "pro-poor" fuel subsidy, in order to strike a balance between reducing pressure on the state budget and protecting the poor.
A member of the Organization of Petroleum Exporting Countries, Indonesia was a net oil importer for several months this year.