Susilo pressured to up fuel prices

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.