Fuel price hike is last resort, says Yudhoyono

President Susilo Bambang Yudhoyono vowed on Monday that increasing fuel prices, which may severely impact on peoples’ purchasing power, would be the government’s last resort in its attempt to cope with soaring global oil prices.

In a rare meeting with journalists at the Presidential Palace, Yudhoyono reiterated that increasing fuel prices was a complicated process that would need political approval from the House of Representatives, which would probably be difficult to secure.

“We’re putting forward other measures, such as accelerating gas conversion or limiting the sale of subsidized fuel, before taking any action to increase fuel prices,” said Yudhoyono.

“I have signed a presidential regulation for fuel distribution restriction and conversion,” he said.

Indonesia has poured more than Rp 168 trillion (US$18.6 billion) into fuel subsidies this year in order to keep fuel prices below that of soaring market prices.

The allocated subsidy is based on an assumption that oil prices stand at around $90 per barrel, but prices are currently hovering at above $100 per barrel.

This has ignited concerns the subsidy would place state coffers at risk.

“But if oil prices can no longer be tamed, we must then force a price adjustment as a contingency measure,” said Yudhoyono.

“I’ve been monitoring the situation closely,” he added.

The government initially planned to restrict the sales of subsidized fuel to private cars to trim the rising fuel subsidy, which is targeted to take effect on April 1.

However, based on the latest developments, the government will instead raise the price of subsidized fuels because state oil and gas company Pertamina needs time to provide distribution facilities for the sale of non-subsidized fuel.

Fuel price increases have become a political commodity in which the government usually confronts nationwide protests that are stirred up by opposition parties.

Analysts have said a decision to raise fuel prices would risk the popularity of Yudhoyono’s Democratic Party. Yudhoyono himself cannot run for another term as president in 2014.

Uncertainty over fuel prices can also affect businesses, as any price increases or limitations on fuel prices will cause higher inflation. Should no policy be taken, businesses will face difficulties in determining their future production costs and the prices of goods, as uncertainty looms over inflation.

Inflation is estimated at 5.3 percent this year if the fuel restriction policy is taken, according to the central bank. An increase in fuel prices will cause inflation to be higher than that of last year, when it stood at 3.79 percent.

Coordinating Economic Minister Hatta Rajasa said the newly signed presidential regulation was aimed at providing authority to the Energy and Mineral Resources Ministry to control the implementation of the restriction policy.

“The regulation doesn’t contain the time frame for when the restriction policy will be implemented. The President has delegated that task to Energy and Mineral Resources Minister Jero Wacik, who is now discussing the plan with House,” said Hatta.