The government has declared its commitment to undertake further reforms, with a top economic minister saying he will push a plan to implement a fixed subsidy for the sale of subsidized fuels this year.

The government 'is preparing to move into a fixed subsidy regime', Finance Minister Chatib Basri said at an international seminar held in Jakarta on Wednesday.

Indonesia adopts a price-based fuel subsidy. At present, the price of subsidized Premium gasoline is set at Rp 6,500 per liter (55 US cents), while the recent trend of rising oil prices and a weakening rupiah have driven up the market price of gasoline to around Rp 9,000 per liter.

With the current system, the price difference is paid for by the government's subsidy. The higher the market price, the higher the subsidy the government must provide.

Under Chatib's proposed fixed energy subsidy system, the government would fix fuel subsidies at a certain amount, such as Rp 1,500 per liter. With this mechanism, the price of Premium gasoline can be adjusted automatically when its market price soars or declines significantly.

'By doing so, you'll remove all the risks regarding the exchange rate and oil price ' the subsidy is fixed and you can keep the volatility [of the subsidy allocated in the state budget] within range,' the minister said.

'Don't rule out the possibility of subsidy reforms, even this year. And by saying subsidy reforms, I mean electricity and fuel,' he added.

He said the government had considered changing the subsidy provision to a fixed system this year.

But Chatib added that the prices of the subsidized fuels would not be changed by the current government because it would be 'politically sensitive' ahead of the 2014 legislative and presidential elections.

According to him, the price of subsidized fuels could be raised by the next government if there was a sharp depreciation of the world oil price.

'You have to change the resubsidy system first without adjusting the fuel price,' Chatib explained. 'By doing that, you can compromise both political and economic rationalities.'

Last year, Chatib succeeded in lobbying President Susilo Bambang Yudhoyono to raise the price of subsidized fuel by 44 percent, only a month after he was appointed finance minister.

The move was taken after soaring consumption of subsidized fuel threatened to drive the fiscal deficit above the legal threshold of 3 percent of gross domestic product (GDP).

However, the magnitude of the fuel-price hike has been deemed insufficient to contain the pressure in the oil-trade balance, as the cost of oil imports soared due to the weak rupiah, Asia's worst-performing currency last year.

Fuel imports also rose due to Indonesia's worse-than-expected domestic oil production, with the realization of oil lifting last year to only 825,000 barrels of oil per day (bpd), falling short of the government's target of 840,000 bpd, according to Finance Ministry data.

Such a situation would widen the deficit in the oil-trade balance to $3.4 billion in the fourth quarter last year, compared to $3.3 billion a quarter earlier, Bank Indonesia (BI) Deputy Governor Perry Warjiyo predicted on Wednesday.

'If the fixed-subsidy policy is implemented, it could expedite recovery in the current-account deficit, affecting BI's monetary policy,' Perry told reporters.

'If [the current-account deficit] lowers quicker than our expectations, then there's no need to extend the tightening.'

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