SBY ready for unpopular step on oil

SBY ready for unpopular step on oil

Tiarma Siboro and Dadan Wijaksana, The Jakarta Post/Jakarta

Repeating pledges made during the presidential election campaign,
president-elect Susilo Bambang Yudhoyono said on Friday that the
new government would not hesitate to take politically unpopular
economic measures as long as these were in the best interests of
the country.

Susilo, who will be sworn in as the country's sixth president
on Oct. 20, told a group of businessmen that the government might
"take steps that are unpopular if they are necessary to secure
our future."

While saying that detailed information on the strategies,
targets and policies of his government would be announced on Oct.
21, the remark could be a veiled reference to cutting fuel
subsidies and raising domestic fuel prices amid soaring crude oil
prices.

During a televised presidential dialog on Sept. 5, Susilo also
made similar remarks, saying the new government did not rule out
the possibility of cutting fuel subsidies if global oil prices
remained high as this would be necessary to avoid future fiscal
disaster.

"We aim to introduce more targeted subsidies," said Susilo at
the time, while quickly adding that any such move would not
inflict suffering on the poor.

The debate on fuel subsidies has reemerged as global oil
prices surge to record levels. In London, the price of Brent
North Sea crude oil for delivery in November reached a record of
US$49.30 in early deals on Friday, breaking the previous peak of
$49.20 set on Thursday. U.S. light crude for November delivery
jumped to a new record of $53 per barrel on Thursday in New York,
and slightly eased on Friday but sill hovered close to a 21-year
high.

Rocketing oil prices mean that the government has to allocate
more out of the state budget on fuel subsidies. Even based on an
oil price assumption of $36 -- as agreed on by the government and
the House of Representatives -- fuel subsidies have been budgeted
at Rp 59.2 trillion, or 307 percent higher than the Rp 14.5
trillion projected earlier this year.

With most of the subsidies being largely enjoyed by car
owners, the huge sums involved have intensified suggestions that
the government cut the subsidies and allocate the money saved on
attempting to improve the welfare of low-income groups.

By reviewing the current fuel subsidy policy, economists said,
not only could the government help the poor more effectively, but
could also allocate more funding for other crucial areas.

Many see this issue as a major test of Susilo's capabilities
as a leader, not only because the issue is a sensitive one, but
also because it could easily be used as a political weapon for
attacking Susilo's credibility.

In a related development, Organization of Petroleum Exporting
Countries (OPEC) -- which supplies about a third of the world's
oil -- said it had no plans to increase oil production despite
the current surge in oil prices, cartel president Purnomo
Yusgiantoro said.

The high prices were the result of "fears of lack of supply
during the winter, but the futures price for next year is falling
because the market expects smaller demand and lower prices next
year.

"We still believe that the price will be below $50 next year,"
Purnomo said.

Some analysts disagree.

"A few months ago, $40 was the psychological resistance level,
but now $50 is not unusual anymore."

"Today, it's $53 and I think that when you have a confluence
of various events threatening supplies, prices could even
approach $60. I don't think people now think 60 is an unfeasible
number," Victor Shum, a Singapore-based senior partner with U.S.
energy consultancy Purvin and Gertz, told AFP.