Govt holds to planned fuel price increases

Aditya Suharmoko ,  The Jakarta Post ,  Jakarta   |  Thu, 05/22/2008 11:25 AM  |  Headlines

Despite protests nationwide, the government will continue with its plan to increase fuel prices by an average 28.7 percent, a ministry official says.

The government will raise the per-liter price of premium gasoline from Rp 4,500 (48 U.S. cents) to Rp 6,000, diesel from Rp 4,300 to Rp 5,500 and kerosene from Rp 2,000 to Rp 2,500.

Finance Minister Sri Mulyani Indrawati told a press conference Wednesday that with the price increases, the government would cut its spending on energy subsidies from Rp 265.6 trillion to Rp 201 trillion.

The government would then be able to increase the budget for its poverty eradication program, she said, from Rp 60 trillion to Rp 100 trillion.

This week, activists and economists rallied against the price increase, saying low-income earners would suffer from it.

"We are facing a very pressing dilemma, but if we don't raise the prices of fuel, in effect we are giving Rp 100,000 every day to rich people," Mulyani said.

"Around 70 percent of the benefits from energy subsidies are enjoyed by around 40 percent of the population whose income is above average," Mulyani said.

By raising fuel prices, she added, the country's total fuel consumption was predicted to decline this year from almost 40 million kiloliters to 36.2 million kiloliters, reducing the government's spending on oil consumption.

Mulyani said President Susilo Bambang Yudhoyono would announce Friday the timing of the planned fuel price increase after a meeting with the Coordinating Minister for People's Welfare, the Social Services Minister and the Home Minister on the implementation of the government's cash transfer program.

The government has allocated Rp 14.1 trillion for a cash transfer program intended for some 19.1 million low-income households across the country.

The program, set to begin Wednesday, is aiming to cushion the impact of increased fuel prices. Each household would receive Rp 100,000 per month until the end of the year.

After the fuel prices rise, Mulyani said, the number of low-income earners would drop to below 15 percent of the country's total population of 220 million, and would reach 12.5 percent in 2009. However, if the government chose not to increase fuel prices, the number of poor people would increase to 19.5 percent next year.

Mulyani also said year-on-year inflation would increase to 11.96 percent in the month the government raised fuel prices, and would gradually decrease to 11.65 percent and 11.19 percent in the months following.

Inflation reached 8.96 percent in April due to the government's unsuccessful program to convert kerosene users to liquefied petroleum gas (LPG).

"Full-year inflation is expected to reach 11.2 percent this year with the fuel price rise," Mulyani said.

Inflation reached 17.11 percent in 2005 after the government increased fuel prices by an average 120 percent.

The economy would grow by 6 percent this year, Mulyani said, adding that it would grow by 6.5 percent next year, with inflation eased to 8 percent.

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