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The International Monetary Fund (IMF) called on the government to take action to limit the nation’s fuel subsidy to “protect the weakest members of the community” as the ballooning funds could be used more productively.
“Action to limit the fuel subsidy is needed not just because the risk of more increase [in] international oil prices, but it’s a very unproductive way of spending government resources,” Milan Zavadjil, IMF senior resident representative in Indonesia, said.
The government has allocated Rp 95.9 trillion (US$11.2 billion) to subsidize fuel this year, an amount observers consider too high. They claim the funds would be better used for infrastructure development or on health and education.
The recent surge in global oil prices may pressure the government to increase fuel subsidies, which would in turn result in widening the state budget deficit to Rp 17 trillion, Finance Minister Agus Martowardojo had said.
For every $1 increase in the annual average Indonesian Crude Price (ICP), the state budget would suffer a deficit of Rp 800 billion, he added.
The government in April delayed a plan to stop the sale of subsidized gasoline to private vehicle owners, a move that could cost the government Rp 6 trillion in more subsidies.
“With the recent global oil price rally, the government has to increase the price of subsidized fuel. The 2011 State Revenues and Expenditures Budget Law has provided legal grounds for it to go ahead with such policy,” Satya W. Yudha, a lawmaker from the House of Representatives’ Commission VII overseeing energy, told The Jakarta Post via telephone.
The law stipulates that the government was allowed to increase the price of non-subsidized fuel if the average oil price in the past 12 months surpassed government assumptions of $80 per barrel by at least 10 percent, or $88 per barrel.
The Energy and Mineral Resources Ministry announced Tuesday that in April, the benchmark ICP stood at $123.36 per barrel, bringing the average price in the past one year to $89.85 per barrel.
The government, however, has chosen to revise its average ICP assumption in the state budget to between $90 and $100 per barrel, instead of raising prices or limiting the subsidy, to minimize potential state budget losses.
Satya claimed raising the price of non-subsidized fuel was a much better way to address the growing budget deficit.
Coordinating Minister for the Economy Hatta Rajasa, however, said fuel subsidies would definitely be scrapped or channeled to the “right target” in the next four years.
“We must make changes prudently. The fuel subsidy is not an easy issue to address correctly,” he said at his office in Jakarta on Monday.
“Some are calling to just increase prices and distribute subsidized fuel directly to the poor, but we run the risk of inflation, which threatens people’s purchasing power. That’s why we are carefully assessing the possibilities,” he said.
“Action to limit the fuel subsidy is needed not just because the risk of more increase [in] international oil prices, but it’s a very unproductive way of spending government resources,” Milan Zavadjil, IMF senior resident representative in Indonesia, said.
The government has allocated Rp 95.9 trillion (US$11.2 billion) to subsidize fuel this year, an amount observers consider too high. They claim the funds would be better used for infrastructure development or on health and education.
The recent surge in global oil prices may pressure the government to increase fuel subsidies, which would in turn result in widening the state budget deficit to Rp 17 trillion, Finance Minister Agus Martowardojo had said.
For every $1 increase in the annual average Indonesian Crude Price (ICP), the state budget would suffer a deficit of Rp 800 billion, he added.
The government in April delayed a plan to stop the sale of subsidized gasoline to private vehicle owners, a move that could cost the government Rp 6 trillion in more subsidies.
“With the recent global oil price rally, the government has to increase the price of subsidized fuel. The 2011 State Revenues and Expenditures Budget Law has provided legal grounds for it to go ahead with such policy,” Satya W. Yudha, a lawmaker from the House of Representatives’ Commission VII overseeing energy, told The Jakarta Post via telephone.
The law stipulates that the government was allowed to increase the price of non-subsidized fuel if the average oil price in the past 12 months surpassed government assumptions of $80 per barrel by at least 10 percent, or $88 per barrel.
The Energy and Mineral Resources Ministry announced Tuesday that in April, the benchmark ICP stood at $123.36 per barrel, bringing the average price in the past one year to $89.85 per barrel.
The government, however, has chosen to revise its average ICP assumption in the state budget to between $90 and $100 per barrel, instead of raising prices or limiting the subsidy, to minimize potential state budget losses.
Satya claimed raising the price of non-subsidized fuel was a much better way to address the growing budget deficit.
Coordinating Minister for the Economy Hatta Rajasa, however, said fuel subsidies would definitely be scrapped or channeled to the “right target” in the next four years.
“We must make changes prudently. The fuel subsidy is not an easy issue to address correctly,” he said at his office in Jakarta on Monday.
“Some are calling to just increase prices and distribute subsidized fuel directly to the poor, but we run the risk of inflation, which threatens people’s purchasing power. That’s why we are carefully assessing the possibilities,” he said.
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22.02
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