Govt plans 'limited' increase in fuel prices

Jakarta, NU Online
As burgeoning fuel subsidies overshadow the sustainability of the state budget, the government announced plans Monday (5/5) to raise fuel prices to a level deemed 'affordable' by the public.

Outgoing Coordinating Minister for the Economy Boediono said the increase would be "limited"; meaning it would help contain a widening budget deficit but that fuels would continue to be subsidized to a reduced extent.<>

"The fuel prices will be increased within a range the public can afford," said Boediono, who is slated to take an oath as the country's sixth central bank governor later this month.

Boediono said the time frame and the percentage of the increase would be announced within the next couple of days.

The plan to increase fuel prices was decided on at a limited cabinet meeting led by President Susilo Bambang Yudhoyono and attended by Vice President Jusuf Kalla and several key economic ministers.

Earlier, Yudhoyono said the debate was no longer whether to increase prices, but rather how much and when.

"If there is an increase, how much would it be? 20 percent, 25 percent, or 30 percent? Why would it be that much?" he asked.

Yudhoyono has faced intense pressure from the business community and key economic ministers to cut subsidies that keep domestic prices of gasoline, diesel fuel and kerosene below international market levels.

As global oil prices already hover at more than US$115 a barrel, Yudhoyono chose to cut the subsidies. The move, economists say, was to prevent the state from facing a budget blowout.

The government has budgeted to spend 12 percent of this year's total national budget, some Rp 987.48 trillion (US$107 billion), on fuel subsidies.

Analysts fear that if fiscal sustainability is not ensured, overseas lending and foreign-direct investment could suffer.

Funds for infrastructure development, education and health are also likely to be strangled as subsidy spending continues to overwhelm the state budget.

Yudhoyono, also vying for a position in the coming general elections next year, has refrained from raising the prices immediately.

To cushion the blow, Boediono said, the government would provide compensation for the poor and would intensify measures to promote energy efficiency.

"For low income earners, we will provide compensation through direct cash aid," he said.

"It's like shifting the subsidies from the middle and high-income earners to the underprivileged."

The government had prepared a new scheme for direct cash transfers, and a safety net policy for people to do social work with certain payment, said Syahrial Loetan, secretary to the State Minister for National Development Planning.

Finance Minister Sri Mulyani Indrawati said the government would keep the budget deficit below 2 percent after cutting the subsidy.

"We will ensure that fuel price increases will accommodate the interests of the community and businesses," she was quoted by The Jakarta Post as saying.

The government last raised fuel prices in 2005, despite protests and unrest nationwide, but won praise from international donors and the business community.

A proposal circulated among media outlets last week suggested an average 28.7 percent increase to fuel prices to be applied in June this year.

Under the proposal, the price of premium gasoline would be increased from the current Rp 4,500 per liter to Rp 6,000, diesel from Rp 4,300 to Rp 5,500 and kerosene from Rp 2,000 to Rp 2,500. (dar)