Free rein for govt on fuel prices
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Should there be a need to raise fuel prices next year, the government can avoid the painful process of requesting legal approval from the House of Representatives, according to the 2013 State Budget Law that was passed on Tuesday.
Provisions in the law stipulate that energy subsidies, which include those spent on electricity and fuel, can be adjusted in accordance with potential deviations of key macroeconomic assumptions and parameters that affect the state’s finances.
“The government, in managing its budget, has the authority to make adjustments when the economy is facing abnormal circumstances. The government can adjust price rates,” Finance Minister Agus Martowardojo told reporters after a House plenary session.
The government was under a lot of pressure to raise subsidized fuel prices earlier this year when global crude oil prices reached new heights. A proposal filed in April to raise fuel prices from Rp 4,500
(46 US cents) a liter to Rp 6,000 a liter was turned down by lawmakers, who themselves had to answer to protests that turned violent outside the House.
As a result of the refusal, government spending on energy subsidies is expected to soar to more than Rp 300 trillion by the end of this year, significantly higher than the Rp 225 trillion allocated in the 2012 budget. Energy subsidies account for 20 percent of the government’s overall annual spending. This reality has been a concern of economists who are wary of its impact on the government’s ability to sustain prudent fiscal management.
Economists argue that if the government is able to adjust subsidized-fuel price rates without having to deal with political intervention from politicians, it would benefit from a faster response to changes in the global economy and maintain the trust of global investors in Indonesian securities.
Finance Ministry fiscal policy agency interim head Bambang Brodjonegoro recently acknowledged that, in the past, political interventions had made it difficult for the government to fully optimize its spending policies.
Legislator Aria Bima from the Indonesian Democratic Party of Struggle (PDI-P), a self-declared opposition party to the government, filed an objection side note to the new State Budget Law, saying that there was a lack of provisions explaining what constituted a deviation in the law.
As a consequence, he said, the government must consult on every change in its calculation of macroeconomic assumptions and parameters should it occur in the future.
“Without prior consultation on subsidy policies with the House, the government has taken away our constitutional right to monitor budget implementation as legislators,” Aria said.
PDI-P lawmaker Effendi Simbolon filed another side note, declaring his disapproval of provisions in the law that would allow the government to raise electricity rates gradually next year.
Effendi said electricity rate hikes would be unfair as costs to producing electricity had soared because of the mismanagement of state-owned electricity company PT Perusahaan Listrik Negara (PLN).
A report by the Supreme Audit Agency (BPK) on the performance of PLN concluded that the state suffered Rp 36 trillion in losses due to mismanagement inside PLN. The BPK said the mismanagement included delays in the construction of new coal-powered power plants, a situation that led to the company purchasing costly diesel-powered electricity generators to sustain growing domestic consumption.
The House is scheduled to hold a hearing session on Wednesday with State-Owned Enterprises Minister Dahlan Iskan, who also led PLN as president director from 2009 to 2011.
Energy subsidies aside, the House approved the government’s economic growth target of 6.8 percent with inflation sustained at 4.9 percent. The target is based on an assumption that the currency will fare at Rp 9,300 to a dollar on average, the state treasury bill (SPN) will stand at a 5 percent interest rate and oil production at 900,000 barrels per day.
In contrast to the government’s more optimistic outlook, the World Bank’s latest report forecasts that Indonesia’s economy will expand to 6.3 percent next year.
The Washington-based institution also warned the country on “downside external risks”, especially those stemming from China’s economy, which could push down Indonesia’s growth to just below 5 percent in 2013.
A 1 percent economic slowdown in China may decelerate Indonesia’s economic expansion by up to a half a percent, the report said.
The World Bank said Indonesia needed to progress with its infrastructure development to avoid the bottlenecking of growth.
The government plans to spend Rp 213 trillion on infrastructure development, up from the Rp 173 trillion allocated this year.