Friday, July 22, 2011

We don’t need to do everything IMF tells us: Minister

Jakarta Post
Rangga D. Fdillah
Linda Yulisman

Indonesia will keep subsidized fuel prices at their current levels, despite calls from the International Monetary Fund (IMF) to allow fuel prices rise to halt the widening state budget deficit.

“We do not need to follow all of the IMF’s recommendations,” Coordinating Economic Minister Hatta Rajasa said on Friday at his office in Jakarta when he was asked about the IMF’s recommendation on the need to adjust fuel prices to conserve the state budget.

Hatta said he was aware of the need to halt the widening state budget deficit, which was a result of rising oil prices in the world market. He said that raising the fuel prices was not the only option that the government could take to reduce its deficit.

“We have increased the quota of subsidized BBM [subsidized fuels] to 40.49 million kiloliters this year,” he was quoted as saying by However, he also said that the government would take other measures to reduce subsidized fuel consumption.

Earlier this month, the House of Representatives approved the government’s request to raise the subsidized fuel quota in the revised 2011 state budget from 38.59 million kiloliters annually to 40.49 million kiloliters. But to do this, the government had to increase spending in the state budget by trillions of rupiah.

In May, the IMF called on the government to limit the country’s fuel subsidy, claiming that the move could “protect the weakest members of the community” by channeling the funds more productively.

In a statement on Friday, Milan Zavadjil, an IMF senior resident representative in Indonesia, again warned that surging fuel subsidies would distort the structure of the state budget and therefore fiscal
policy should be shifted from subsidies to infrastructure and social spending. Any price hike would be sure to trigger long lasting inflation in the country, he said.

This year, the government has allocated Rp 95.9 trillion (US$11.22 billion) for the fuel subsidy, which, according to analysts, would be better used to finance infrastructure projects or healthcare and education sectors.

The government had, in fact, planned to limit the sales of subsidized fuels to private cars beginning this year in a bid to curb the soaring state deficit caused by the rising oil prices. But the plan was delayed amid fears that the measure could incite nationwide protests that could in turn compromise political stability.

The price gap between the subsidized fuels and non-subsidized fuels is widening due to persistent increases in the global oil prices. With the gulf in prices, which is now a difference of about Rp 4,000 per liter, many car owners who previously used subsidized fuels have started buying subsidized fuels. The widening price gap has also encouraged subsidized fuel smuggling to industries.

Separately, the Energy and Mineral Resources Ministry’s director general for oil and gas, Evita Herawati Legowo, said on Thursday that his office was preparing a regulation to impose severe punishment on industries that bought subsidized fuels.

According to the 2006 Presidential Decree on Fuel Prices, industries are prohibited from using subsidized fuels, but no sanctions were stipulated for those that violated the decree.

“It’s no longer just a plan. We are already preparing the regulation. We hope to finish it soon,” she told reporters at the inauguration of the ministry’s new echelon I officials in Jakarta on Friday.

According to Tubagus Haryono, the head of downstream oil and gas regulator BPH Migas, violating industries used various methods to get subsidized fuels, such as borrowing people’s cars or public transportation vehicles to go to fuel stations.

“We’re now investigating and collecting data to find which industries have been buying the subsidized fuel. We have sent civil investigators to several suspicious areas,” he said, adding that, as of today, no industries had been caught red-handed.

He promised that his agency would intensify its supervision of industries and fuel stations located near industrial areas across the country.

Tubagus added that mining and plantations were two industrial sectors where illegal use of subsidized fuels was rampant.

The agency said earlier that between 10 and 15 percent of the subsidized fuel distributed by the government was illegally sold to industries.

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