Purnomo insists fuel subsidy must be maintained
Purnomo insists fuel subsidy must be maintained
Fitri Wulandari, The Jakarta Post , Jakarta
Minister of Energy and Mineral Resources Purnomo Yusgiantoro
said government the subsidies on various fuel products should be
maintained through 2004, which is an election year.
"Earlier this year we tried to increase fuel prices but there
was a fierce rejection from the public.
"There is no way we can scrap the subsidies (for fuel
products) by 2004," Purnomo said.
He said this meant that Law No. 25/2000 on the 2000-2004
National Development Program, which says that subsidies on all
fuel products except kerosene must be scrapped by 2004, should be
revised.
The government has been under pressure from international
donors to end the cost fuel subsidies to put state finances in
order following the devastating impact of the late 1990s economic
crisis. Some analysts have also said the subsidies were largely
enjoyed by richer people and encouraged the smuggling of fuel
products to neighboring countries.
But ending the subsidies is a politically difficult task,
particularly next year when the country holds its first ever
direct election.
Earlier this year, a decision to start cutting the subsidies
and forcing domestic fuel prices to appreciate in tandem with
international prices had to be canceled following public
protests.
The government has allocated Rp 13.2 trillion in the current
state budget for fuel subsidies. This was initially meant only to
cover the subsidy for kerosene, a fuel product used mainly by
low-income families for cooking.
The Ministry of Finance, which is currently discussing the
government's 2004 state budget draft with the House of
Representatives, has yet to respond to Purnomo's statement. It
would undoubtedly be difficult for Minister of Finance Boediono
to accommodate the demand, as it would create an additional
burden on the already tight state budget, particularly amid
rising international oil prices.
Purnomo said that although rising international oil prices
would force the government to spend more to maintain current fuel
prices, the government would in turn enjoy huge windfall profits
from the sale of oil to cover the ballooning subsidy. Indonesia
is an oil exporting country.
Oil prices have averaged US$32 per barrel for the past few
days, although this price has begun to inch back down to $28 per
barrel.
The current state budget assumed an average oil price of $22
per barrel, but because of various uncertainties in the global
market, including the recent war in Iraq, oil prices in the
international market during the first half of the year averaged
$26.15 per barrel.
Legislators and the Ministry of Finance will jointly decide on
the size of the fuel subsidies for next year based on
developments in international oil prices, the currency exchange
rate and domestic consumption volume.
They initially set an oil price assumption of $22 per barrel
amid a gloomy outlook for global oil prices next year due to
fears of oversupply as oil from Iraq enters the market.
Additionally, Russia has said it will increase oil production.
At Monday's hearing between the Ministry of Finance and the
House budget committee, the ministry proposed a domestic fuel
consumption figure of 61.4 million kiloliters, lower than the
initial proposal of 63 million kiloliters.