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| Subsidized fuel rocketed will kill people and people will weight war |
Jakarta Globe - April 2, 2012
Agustiyanti, Rizky Amelia, Arientha Primanita & Ezra Sihite -- Indonesia can increase the price of subsidized fuel as early as next month if the Indonesian Crude Price hits $135 per barrel in April, ministers said on Sunday.
The House of Representatives on Friday rejected the plan to raise the price of
Premium subsidized fuel from Rp 4,500 to Rp 6,000 (50 cents to 65 cents) beginning on Sunday, but instead approved a conditional increase.
The revised state budget law passed in the early hours of Saturday states that
the government can increase the fuel price if the average of the ICP in the
previous six months is 15 percent above $105 per barrel, an assumption of the
ICP set in the budget.
Both Finance Minister Agus Martowardojo and Coordinating Minister for the
Economy Hatta Rajasa said on Sunday that the amendment means that government
has the authority to go ahead with the 33 percent fuel price hike if the six-
month ICP average goes beyond $120.75.
According to government data, the ICP in October stood at $109.25 per barrel,
November at $112.94, December at $110.70, January at $115.90, February at
$122.17 and March at $128. This means the current six-month ICP average stands
at $116.66 per barrel.
Deputy Minister for Energy and Mineral Resources Widjajono Partowidagdo said
that according to his calculation, if April's ICP rises above $135 per barrel,
the six-month ICP average will go beyond $120.75. "This means we can directly
increase the fuel price next month," he said.
Widjajono explained that fluctuations in the ICP depended on circumstances in
the Middle East, but that if there is no change in the current situation, the
oil price will continue to rise.
The government had been fighting for the price increase to reduce subsidy
spending on fuel, which ate up around $14 billion, or 11 percent, of the
country's state budget last year -- more than what the government spent on
education and health combined, which stood at $9 billion and $1.4 billion
respectively.
The plan to reduce fuel subsidies and increase prices led to massive protests
across the nation that turned violent in the run up to Friday's plenary.
But when he addressed the nation on Saturday evening, President Susilo Bambang
Yudhoyono said the government would only cut fuel subsidies after all other
measures had been exhausted. "My view is that an increase in subsidized fuel
price will be a last resort if there is no better way," he said in his
televised remarks.
The President said that although the oil price has been increasing since
October last year, the government has been looking for alternative policies
that did not directly increase the fuel price.
Hatta added that even if the average ICP passes the $120.75 mark, the
government would still not automatically increase fuel prices. "We will try to
find alternatives, such as calling on ministries and state institutions to cut
expenses so that we can have budget savings to finance the subsidy," he said.
However, oil and gas expert Kurtubi says that based on his estimates of how
world oil prices fluctuate, a price hike next month was unlikely. "The
government will increase the price by July 1, at the soonest," said the Center
for Petroleum and Energy Economic Studies expert.
__________
Leave fuel subsidies alone as long as public is denied share of resources
Jakarta Globe - March 30, 2012
Will Hickey -- Indonesia has a burgeoning population with an exponentially
growing need for energy, but many still live hand to mouth. So as April 1
approaches, the issue of fuel subsidies has been highly contentious. What the
controversy shows is that Indonesia has failed to use its vast oil and coal
resources to lift the living standards of all its citizens.
The root cause of the problem has been a squandering of resources for short-
term profits. This has been a consistent theme, such as exporting high-calorie
thermal coal from Kalimantan to higher paying markets instead of selling back
a lower quality coal under the domestic coal obligation to state utility
company Perusahaan Listrik Negara.
Leaders in the government and ministries do not consider Indonesia's resources
to be owned by its citizens, but rather by themselves and foreign investors.
For example, Freeport owns over 90 percent of its operation in Papua, with
revenue last year of $2.3 billion, and BHP Billiton has a 75 percent stake in
a $1.3 billion Kalimantan coal project. Companies appear Indonesian, but are
heavily foreign influenced.
When it comes to the fuel subsidies, the constant banter about numbers hides
the real issue: empowerment and resource ownership. The fuel subsidy is the
only real claim to ownership or bona fide share interest most residents have
on the natural resources in their own country.
In the absence of leadership that will empower, develop or add tangible value
to its people, this shouldn't be taken away. And if the government insists on
taking the subsidy away, it should also renegotiate production sharing
contracts and mining work contracts that give generously to foreign investors
and likely the people that approved them.
Nigeria is a country that has been ravaged by the pitfalls of production
sharing contracts and corruption. It has some of the most pristine oil
reserves in the world, yet most of its residents live on less than $2 a day.
Where has the money gone?
Recently, Nigeria tried to remove fuel subsidies, resulting in severe riots
and economic shutdown. Oddly, Nigeria's current World Bank candidate Ngozi
Okonjo-Iweala (a self-proclaimed champion for the poor) supported this removal
and in a lengthy discourse explained why it was good for Nigeria's future.
Nonetheless, President Goodluck Jonathan was forced to backtrack. Nigerians
did not believe that any savings in the fuel subsidy would magically accrue to
their benefit and development under the current regime.
The takeaway in countries like Nigeria and Indonesia should be from the ones
who are benefiting immensely from the current system, not from those
struggling on day-to-day subsistence.
China has subsidized prices for a long time to keep the export machine
running. Yet a narrower-than-expected trade surplus last month forced China to
raise the price of fuel. Nonetheless, China is committed to increasing value-
added exports and it must continue to subsidize fuel to play the role of the
world's factory.
The country provides for economic placation by way of continued fuel subsidies
and mandating that any investing entities share skills and tech transfers
through joint ventures to increase its value added activity on its exports. It
has recently mandated that any new investments in its coastal area must be
value added, not merely labor intensive.
But unfortunately Indonesia is not considering any such strategy. And the
people on the street know full well the impact of lessening any subsidy: any
shortfall will be forced on their shoulders, not on those of the elite. The
people behind the budgets seem to be playing things by the numbers under a
static rubric of today. They are not thinking about the future.
But fuel subsidies should be seen as a long-term, qualitative issue and not a
short-term, quantitative one. Instead of a wish list about what a reduction in
fuel subsidies might bring, let's consider a few things that active
empowerment, leadership and resource ownership can produce.
Pollution reduction is one. Reducing fuel subsidies will not solve this issue.
Only greater investment in public transportation, alternative energy and the
education required for developing those factors will in the long term.
The solution is not in building bigger overpasses, longer runways, or wider
freeways. That only increases the dependence on fossil fuels. Leadership must
make alternative projects a reality.
Value added capacity should be a second priority. Malaysia is already pursing
this goal in its oil sector. Its residents are not interested in merely
exporting crude and palm oil for short term gain. They want to develop
finished oil products for export to developing Asia.
Value added products, under conventional economic theory, raise living
standards, salaries and a country's gross domestic product. China, too, is
therefore squarely focused on developing value added exports for its export
industries.
Third, don't forget human resource development, as this is the real key to
sustainability. Does Indonesia really want to become a cheaper default to
higher-priced Chinese labor? The government's attitude should be one of
selective investment. The main question should be: who stands to benefit more,
foreign investors or ordinary residents?
Investments that foster low-wage tourism and apparel making or allow a flood
of cheap, Chinese-made goods to enter the market are not the way to go. Trade
Minister Gita Wirjawan has approved investment ventures from China into
infrastructure, ports and power generation. These investments create higher-
wage jobs, but the minister should know that China is well-versed in
integrating its own citizens into these projects at all levels in the work
processes. And that is an important thing for Indonesia to keep in mind.
But there are other examples for Indonesia's national leadership to take to
heart. The US state of Alaska, for example, and the United Kingdom and Norway
take the position that it is citizens who effectively own a country's natural
riches.
The way the people are paid varies. Alaska generates a cash windfall each year
that is divided among residents, about $1,000 yearly. The UK has a "citizens
first" mandate for educating their own to work in both upstream oil drilling
and downstream refineries via its workforce development arm. Norway has a
preference for using its oil reserves to empower its citizens via free health
care, education and subsidizing childbearing.
Obviously, these are countries with high levels of transparency, but the point
is that something can be done for ordinary people if only the political will
is there. It should also be noted that in the case of Alaska and in the UK,
oil investors originally fought hard against these reforms. It took
significant political leadership and vision to force gain-sharing in these
industries to benefit the masses.
For Indonesia, exactly that is needed. And the fuel subsidies should be left
alone until a real development and growth strategy has been prepared that will
benefit all.
[Will Hickey, a former Fulbright professor of energy and human resources, is
an associate professor of management at Solbridge International School of
Business in Daejeon, South Korea. He can be contacted at
whickey@solbridge.ac.kr.]
____________
Fuel wars wound Yudhoyono
Asia Sentinel - March 31, 2012
Indonesian President Susilo Bambang Yudhoyono seems almost certain to fall
short in his attempt to put in place a 33.3 percent fuel price hike, probably
doing incalculable damage to what is left of his presidency and dismaying
foreign investors and ratings agencies.
A week of demonstrations nationwide -- the worst since Yudhoyono took office
in 2004 -- culiminated Friday when thousands of demonstrators thronged the
streets of Jakarta as a planned vote on the price increase in the House of
Representatives neared.
The main route to Sukarno-Hatta International Airport was blocked by
protesters, as were two lanes of the Jakarta inner city toll road. Violence
erupted in central Jakarta late Thursday and Friday as protesters turned over
cars and set them afire. A total of 54 people were arrested on Thursday as
police struggled to keep order.
Angry labor unions, student groups, various protest movements and the well-
oiled street politics of the opposition Indonesian Democratic Party of
Struggle (PDI-P) managed to create an atmosphere of popular upheaval despite
the fact that the economy is robust and the country is largely peaceful.
Added to the stew were the opportunism of the Islamist Prosperous Justice
Party (PKS), and Golkar, the second-biggest party in Yudhoyono's fragile
coalition, which backed away from an earlier agreement to support the price
hike, leaving the president looking weak.
In the end, only the president's Democratic Party was holding firm as the
House adjourned Friday. It was uncertain if a vote would even be taken as the
various parties argued about the acceptable "threshold" price for oil that
would get them to trigger a price increase.
But what was really at stake was political and Yudhoyono seems to have taken a
thrashing.
The debacle could herald the real beginning of the lame duck phase for a
president who has grown progressively weaker during his second term despite
his resounding election victory in 2009. With many of his key lieutenants
facing corruption charges and his party in disarray, the president seems to
have finally lost control of his shaky ruling coalition.
National elections are to be held in 2014 and the country's chattering classes
are already absorbed in pondering the likely next president. In such a
climate, nominal coalition allies likely see no practical value in helping the
president, who cannot run for a third term, raise fuel prices regardless of
the economic sense behind such a move.
The other problem facing the president after such an embarrassing defeat is
what to do with his "partners," Golkar and the small but vocal PKS. Both
parties occupy key cabinet posts and one way to discipline them for breaking
ranks would be to jettison them from the cabinet. But the president has been
reluctant to make decisive moves on his cabinet -- or indeed much of anything
- although he may be backed into a corner by such open dissension.
The flip side is that Golkar and PKS might even welcome being removed from a
floundering government as an election nears. There can be little political
advantage for Golkar, the country's largest party, or PKS, its most fractious
Islamist party, in being tied to Yudhoyono's tattered coattails.
In any case, should the fuel price move fail, it is hard to imagine SBY
mounting any major initiative before 2014. Instead, he will likely confine
himself to trying to minimize the damage to him personally from a growing
party-funding scandal that has already brought down the party treasurer and a
key lawmaker. The mess is likely to also lead to charges being brought against
Democratic Party chairman Anas Urbaningrum and two cabinet ministers, Sports
Minister Andi Mallarangeng and Manpower boss Muhaimin Iskandar. It is
Mallarangeng whom the president likely misses the most. A long-time protege
once seen as a possible future president, Mallarangeng has served previously
as Yudhoyono's spokesman and a key political strategist.
"He needs Andi but Andi has been made irrelevant by the scandal," said a
veteran local journalist. "SBY doesn't have anyone to turn to for strategy or
political muscle anymore."
Likewise, SBY misses his first term vice president, Golkar's Jusuf Kalla, who
was a master at cracking the whip and using his personal charm to keep unruly
allies in line. The current vice president, Boediono, while considered to be
honest and capable, is a nonpolitical technocrat with almost no political
capital.
The end result has been drift and inaction since 2009 for a president who
seems out of touch with politics.
His troubles started with the assault on his first finance minister, Sri
Mulyani Indrawati, by forces aligned with coal tycoon and Golkar chairman
Aburizal Bakrie, who wanted her out because of her zeal in seeking back taxes
from his empire and her refusal to allow government bailouts to his ailing
companies in the wake of the 2007-8 global financial meltdown. When Sri
Mulyani was ultimately driven out of Yudhoyono's cabinet and into the eager
arms of the World Bank, where she became a managing director, there were no
negative repercussions for his supposed partners in Golkar or PKS, which also
backed the unsightly assault on Sri Mulyani. It was clear there would be no
discipline inside Yudhoyono's political world.
Often criticized for being naive and amateurish, Yudhoyono's Democratic Party
also badly miscalculated when one of its lawmakers said publicly this week
that Bakrie had supported a Rp2,000 increase in the fuel price. Bakrie's
statement, made privately, was an embarrassment and he quickly denied it. The
Democrat involved was disciplined but the damage to the fuel hike was done and
the same day Golkar said it would not vote for the plan.
A deal brokered between the Democrats and Golkar to try to buy off protest
through the distribution of direct cash assistance to the public after a fuel
price hike appears to have collapsed. Golkar became wary of that maneuver
because its leadership did not want to see the Democrats win public support
with cash payments financed by the savings the government would realize from
cutting the subsidy.
The problem is that the projected fuel price increase, which was expected to
drive the cost of subsidized premium fuel, the most popular grade, from
Rp4,500 (49 US cents) a liter to Rp6,000, is badly needed. The price of
internationally traded crude has risen over the past six months from a low of
about US$75 per barrel to hover near US$110 as unrest in the Middle East and
the threat of military action against Iran have driven prices steadily upward.
It was a miscalculation fostered by Yudhoyono himself when he cut prices
shortly after being reelected in 2009.
Most economists agree that the price hike is necessary because of the
distortions that subsidies build into the system, especially as prices
skyrocket internationally, increasing the amount the government must put into
the subsidy. Even at a 33.3 percent increase, the government will still be
forced to subsidize a commodity that in reality costs around Rp8,000 for
premium fuel. Without a price hike, the government's budget deficit is
expected to rise to 4 percent of GDP, more than double its 2012 target of 1.5
percent.
The government paid US$18 billion in various subsidies in 2011 for fuel,
exceeding the cost of Indonesia's entire social and education system budgets.
___________
Fuel hike opposition a ploy: Analysts
Jakarta Globe - March 31, 2012
Robertus Wardi & Dessy Sagita -- Government coalition members are trying to
boost their public image and bargaining position over President Susilo Bambang
Yudhoyono's Democratic Party in their last-minute rejection of the fuel price
hike, political analysts agreed on Friday.
"I don't believe the coalition members think about people. For them, it is
only a game of achieving self-interested goals while protesters outside risk
their lives," said Yunarto Wijaya, an analyst from political think tank Charta
Politica.
While the Democrats pushed the proposal to raise the fuel price by 33 percent
from April and three opposition parties -- the Indonesian Democratic Party of
Struggle (PDI-P), the Great Indonesia Movement Party (Gerindra) and the
People's Conscience Party (Hanura) -- firmly rejected it, five other parties
in the ruling coalition had their own agenda.
"I respect both Democrats and the opposition who have had clear positions from
the beginning. The other coalition members seem like they are only trying to
bolster their bargaining power and public image with their last-minute
proposals," Yunarto said.
The state budget law prohibits the government from increasing fuels price this
year. The 560-seat House of Representatives was this week debating whether to
scrap Article 7.6, thereby allowing the hike.
The Democrats, the largest party in the House with 148 seats, wanted it
removed and three opposition parties insisted on maintaining it. The five
coalition members came up with different proposed amendments.
They used the Indonesian crude price (ICP) assumption in the state budget (set
at $105 per barrel) as a basis to propose different conditions for the
government to increase prices of subsidized fuels, leading to hours of
protracted negotiations that pushed the plenary vote late into the evening.
The price is currently 10 percent above that, at $116 a barrel.
The Golkar Party, the second-largest party with 106 seats, said it would only
support a fuel price hike if the ICP rose 15 percent above the budget forecast
within the next six months. The Prosperous Justice Party (PKS), with 57 seats,
rejected the price hike unless the ICP rose 20 percent above the assumption in
the next three months.
The National Awakening Party (PKB), with 28 seats, proposed 17.5 percent while
the National Mandate Party (PAN), with 46 seats, wanted 15 percent. The United
Development Party (PPP) and its 38 seats insisted on 10 percent.
University of Indonesia political analyst Arbi Sanit, however, said the fuel
price would ultimately be increased because the politicians realized that the
mounting subsidy would create huge deficit for the budget.
"The politicians only want to show to protesters that they are concerned about
their aspirations," he said. "But the protests are not powerful enough to
change the government's plan."
Meanwhile, legal expert Yusril Ihza Mahendrac said even if the House failed to
clear the way for the government to increase fuel prices, Yudhoyono could get
credit by saying that he canceled the plan because he considered the people.
_________
Indonesian fuel price rise on hold for at least six months
Jakarta Globe - March 31, 2012
Ezra Sihite, Robertus Wardi & Arientha Primanita -- The government late on
Friday night failed to obtain support from the House of Representatives to
raise fuel prices from Sunday, with lawmakers debating alternate policies into
the early hours of this morning.
After repeated suspensions to allow lobbying, the House plenary session
finally voted to possibly raise the price in six months, at which point the
Indonesian Democratic Party of Struggle (PDI-P) staged a walkout.
Under the agreed option the fuel price will only increase if the Indonesian
Crude Price exceeds the amount set in the budget by at least 15 percent for
six months.
The proposal to increase fuel prices sparked massive protests around the
country during the week, including one in which demonstrators crashed through
the gates of the House even as lawmakers deliberated.
In the face of these developments, President Susilo Bambang Yudhoyono canceled
his plan to attend an Association of Southeast Asian Nations leaders summit in
Phnom Penh on Tuesday and Wednesday, presidential spokesman Julian Aldrin
Pasha said on Friday evening.
"The president has decided to remain in Indonesia, close to the people,"
Julian said. Vice President Boediono will replace him at the summit,
presidential special staffer Teuku Faizasyah said.
At the plenary the three opposition parties -- the PDI-P, the Great Indonesia
Movement Party (Gerindra) and the People's Conscience Party (Hanura) -- were
firm in their rejection of any fuel price increase.
The ruling Democratic Party initially backed the increase but later modified
its stance.
Their plan would allow the government to raise the cost of fuel only if the
ICP rose a certain percentage above the $105-per-barrel assumed average of oil
prices used to formulate the 2012 state budget.
Initially, they wanted a 5-percent difference but eventually shifted their
demand to 10 percent and then 15 percent. The five other members of the pro-
government coalition of parties laid down conditions that would make it
impossible for the price increase to take place as scheduled.
Golkar, in its opinion read out by lawmaker Ahmadi Noor Supit, proposed that a
"fuel price adjustment" only be made if the ICP was at least 15 percent higher
than the 2012 budget price assumption for six consecutive months.
Ahmadi said while at first the party had understood the need for a price
increase, "When the people began to make demands of the parties, we conducted
a review. We reject an increase in the price of fuel."
The Prosperous Justice Party (PKS), a coalition member, wanted the ICP gap to
be at least 20 percent, while coalition member the National Awakening Party
(PKB) and the United Development Party (PPP) pushed for 17.5 percent and 10
percent, respectively. The National Mandate Party (PAN) joined Golkar in
demanding the ICP be at least 15 percent higher than the assumed price.
Finance Minister Agus Martowardojo said the government could not yet estimate
the fiscal risks of leaving fuel prices alone, but said the law dictated that
the deficit must not exceed 3 percent.
Purbaya Yudhi Sadewa, chief economist at the Danareksa Research Institute,
said the deficit risked surpassing 3 percent but that it would not have too
much of an impact on the economy. "In reality, it would not be a problem, the
market can absorb it and remain positive," he said.
[Additional reporting by Agustiyanti & Kunradus Aliandu.]
__________
Minister told off for threats against politicians protesting fuel hikes
Jakarta Globe - March 29, 2012
Markus Junianto Sihaloho, Ezra Sihite & Agus Triyono -- Home Minister Gamawan
Fauzi is facing mounting criticism after threatening to punish district heads
who took part in rallies against the fuel price increase.
In a visit to the Jakarta Globe office on Wednesday, former President Megawati
Sukarnoputri, the chairwoman of the opposition Indonesian Democratic Party of
Struggle (PDI-P), warned Gamawan to be careful about saying something she said
could be in violation of the law.
"When he was a governor [2005-09] he also rejected the government's plan to
raise fuel prices," she said. "That's why I say to him, don't overreact."
Gamawan was supported by the PDI-P when he won his job as Solok district head
and later as governor of West Sumatra prior to 2009. He was reportedly
Megawati's favorite regional head, and quickly became one of the country's
most popular officials.
In 2009, Gamawan was tapped by President Susilo Bambang Yudhoyono for his re-
election team and was later given the Home Ministry portfolio. When Yudhoyono
planned to increase fuel prices in 2005, Gamawan was one governor who fiercely
opposed the plan.
Megawati said she would defend all PDI-P district heads who took part in
rallies against the fuel price increase.
A number of PDI-P district heads and mayors took part in demonstrations in
their regions on Tuesday, rejecting the plan to raise fuel prices.
They included Malang Mayor Peni Suparto; Solo Deputy Mayor FX Hadi Rudyatmo;
Surabaya Deputy Mayor Bambang Dwi Hartono; Sukoharjo district head Wardoyo
Wijaya; and Jember deputy district head Kusen Andalas.
This prompted Gamawan to issue a warning to mayors and district heads that
they could lose their jobs for violating their oaths and the law.
Yudhoyono's Democratic Party immediately threw its support behind Gamawan. "If
their actions can endanger the state and society, then they can be removed,"
said Andi Nurpati, the party's head of public communications.
She said that what the mayors and district heads were doing amounted to
insubordination, and thus, they were in violation of the law.
Legal expert Yusril Ihza Mahendra dismissed the idea that mayors and district
heads could be removed from office for taking part in protests. "They can't be
removed by the home minister as they are directly elected by the people," he
said.
_____________
Indonesia opposition parties block fuel price hike
Reuters - March 30, 2012
Jakarta -- Leading Indonesian political parties said on Friday they will
oppose a government plan to raise fuel prices unless oil prices climb further,
dealing a blow to the ruling party's efforts to control a swelling budget
deficit in Southeast Asia's largest economy.
The government wants a 33 percent rise in petrol prices, currently the
cheapest in Asia, from April 1 to reduce a subsidy bill that threatens to
undermine the budget discipline that led rating agencies to lift the country
to an investment grade status.
President Susilo Bambang Yudhoyono's Democrat Party wants to change the law to
allow a price hike if the Indonesia Crude Price (ICP), a basket of crude oil
prices, rises to average more than five percent above a budget forecast for
$105 a barrel. The price is currently 10 percent above that at $116 a barrel.
But the Golkar Party, part of the ruling coalition and with the second largest
number of seats in parliament, said on Friday it rejected a fuel price hike
and would only support it if the ICP rose 15 percent above the budget
forecast.
Golkar previously supported the fuel price hike but changed its mind after a
week of protests across the country. On Friday thousands of demonstrators
gathered outside the parliament building and blocked access to a toll road to
the airport.
"At the beginning of this debate, Golkar was leaning to understanding the
government's stance. But when the people demanded, shouted and reminded us
that Golkar is a party of the people, we of course reassessed our position,"
said Ahmadi Noor Supit, a Golkar lawmaker.
Protests over a fuel price hike helped spell the end for autocratic leader
Suharto in 1998, and lifting prices would hurt the bulk of the country's 240
million people, many still living on a few dollars a day despite years of
strong economic growth.
"The latest manoeuvre by Golkar is a smart calculation... this rejection of
the fuel price hike could boost support for Golkar," said Syamsuddin Haris, a
political analyst from Indonesia's Institute of Sciences.
Other parties also told parliament they rejected the hike or required a rise
in the ICP price of up to 20 percent. Lawmakers are set to continue to thrash
out possible options for a deal, though an April price hike now looks
unlikely.
Failure to pass the proposal in parliament would keep inflation low but
disappoint rating agencies that want the government to use the $18 billion it
spent on fuel subsidies last year for much-needed infrastructure instead.
Lawmakers postponed the vote until the last minute as they feared supporting
the move would hurt their popularity in the run-up to national elections in
2014.
Subsidies keep pump prices at just half the market rate, spurring fuel demand
in Asia's largest gasoline and diesel importer and helping boost car sales to
record highs. Lifting prices by a third would only take them to a level
reached in 2008 after Yudhoyono hiked prices following a oil price spike.
The president cut prices in 2009, as oil prices declined during the global
financial crisis. His plan to lift them again comes as oil prices have surged
because of concerns over Iran's exports.
"At this late stage, failure to have the fuel price plan approved by the
legislature would be a major political blow for the administration and likely
to have economic repercussions," said Jakarta-based risk analysts Concord
Consulting.
Without a price hike, the government sees the budget deficit widening to 4
percent of GDP, more than double the 1.5 percent it was aiming for this year.
However, the central bank has said lifting fuel prices will boost inflation
above its target to over 7 percent, from 3.6 percent in February. It is also
likely to dampen consumer spending, the main driver of the economy in the G20
member.
Indonesia, a former OPEC member, has long subsidized pump prices as do other
major producers such as Iran, but declining crude output and dilapidated
refineries mean it relies on costly motor fuel imports. Economists say weaning
consumers off subsidies is critical to the country's long-term financial
health.
[Additional reporting by Adriana Nina Kusuma and Reza Thaher.]
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