Susilo pressured to up fuel prices
The Jakarta Post, Jakarta
Pressure is mounting for president-in-waiting Susilo Bambang Yudhoyono to take the politically difficult step of raising fuel prices as early as November as oil prices surge to new record levels with no signs of abating in the near future.
The move would be of major significance in reducing costly fuel subsidies and easing pressure on the already cash-strapped state budget.
On Wednesday, the International Monetary Fund (IMF) joined the chorus of those suggesting that the government should rethink the current fuel subsidy arrangements by targeting the money primarily at lower income people and raising the prices of fuel products mostly used by well-to-do car owners.
Stephen Schwartz, the IMF's senior representative here, said that the new government faced the challenge of identifying spending priorities, given the huge amounts of money required to pay for the fuel subsidies.
The government also needed to start directing the subsidies at the poor, Schwartz said.
Acknowledging the sensitivity of the issue in Indonesia, he said that providing "rational explanations" on the matter would help the public understand the situation. Schwartz's statement came as oil prices in New York surged to more than US$50 per barrel on Tuesday.
In what may be intended as political pressure on Susilo to raise fuel prices, the House of Representatives on Tuesday approved a revision of the 2004 state budget, in which the fuel subsidy allocation is increased to Rp 59.2 trillion (US$6.43 billion) from the Rp 14.5 trillion allocated under the original budget so as to reflect the current surge in oil prices. But the figure is less than the Rp 63 trillion in new money that is needed to ensure that fuel prices stay at their current levels until the end of the year.
To reduce spending on fuel subsidies, the House has recommended that the new government (to be sworn in on Oct. 20, not Oct. 5 as earlier reported) raise fuel prices by around 30 percent starting November -- a recommendation that is widely regarded as a political Trojan horse for the Susilo government, which is likely to face tough times ahead in the form of an uncooperative House, still dominated as it is by a coalition of opposition parties.
"For premium gasoline, for example, we recommend an increase of between 27 percent and 32 percent. This will only push the price up to between Rp 2,300 and Rp 2,400 per liter from the current level of Rp 1,810," lawmaker Djoko Susilo said.
As for automotive diesel, which is currently priced at Rp 1,650 per liter, Djoko recommended an increase of between 21 percent and 27 percent.
A recent study by the University of Indonesia School of Economics' Institute for Economic and Social Research (LPEM-UI), said those who are economically well-off consume 8.2 times as much premium gasoline as the poor. In the case of automotive diesel oil, consumption by the well-off is 99.4 times higher than that by the poor.
As for inflationary pressures, the same study forecast that a price hike of less than 30 percent would only add 1 percent to the rate of inflation. It cited early 2002 when the government raised fuel prices by an average of 22 percent. However, inflation in the following month only increased by 0.8 percent.