Record Oil Prices Force Fuel Price Hike

JAKARTA ~ The central government confirmed this week that it will raise its subsidized fuel prices to protect the state budget from the soaring price of oil.

“We will raise the subsidized fuel price within the limits that people can afford. We’re now working on that and we’ll announce it to the public later,” Coordinating Minister for the Economy Boediono told reporters.

He did not indicate the size of the price hikes, which are likely to further fuel inflation in Southeast Asia’s biggest economy ahead of parliamentary elections next year.

Rising fuel prices helped drive Indonesia’s inflation rate to 8.96 percent in April, its fastest rise in more than 18 months.

Indonesia’s ballooning fuel subsidies are putting pressure on the budget and draining funds away from spending on the poor and crumbling infrastructure.

The subsidies have become increasingly expensive as the price of oil has surged.

Fuel subsidies this year are projected to nearly triple to Rp126.8 trillion (US$13.8 billion), or about 12 percent of the state budget, based on a revised oil price of $95 per barrel.

In afternoon Asian trade on Monday, New York’s main oil futures contract, light sweet crude for June delivery, was 20 cents higher at $116.52 per barrel.

President Susilo Bambang Yudhoyono said the question was no longer whether prices would be raised, but by how much.

“We are not at the stage of talking about whether to raise it or not, but which commodities should be increased and whether it will be 20, 25 or 30 percent …,” he said.

Officials have been widely reported to be discussing a rise of almost 30 percent for premium gasoline to Rp6,000, compared with the current Rp4,500.

Last month the World Bank said the subsidies were of “growing concern” and the money would be better spent on much-needed infrastructure and social projects.

The Bank estimates that combined subsidies for fuel and Indonesia’s oil-burning electricity industry cost over $20 billion a year, outstripping government spending on housing, law and order, health and education combined.

Bank figures show nearly half of the subsidy goes to the country’s richest 10 percent, while the poorest half of the population gets less than 20 percent.

The last cuts to the fuel subsidy in 2005, when prices were hiked more than 100 percent, were met with rowdy street protests but little long-term social unrest.

However, this year’s planned increases come amid a global food price crisis that has seen sharp increases in the domestic price of cooking oil, rice and soybeans, a key source of protein for the country’s poor.

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