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Govt to use fixed fuel subsidy next year
Sofyan Djalil
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Sofyan Djalil. JP/Jerry Adiguna
The government plans to use a fixed subsidy in the sales of subsidized fuels beginning next year to ease uncertainty in the state budget and, at the same time, to allow people to pay less for fuel, if the price of crude oil in the world's market declines.
Coordinating Economic Minister Sofyan Djalil said in Jakarta on Tuesday the fixed subsidy, in addition to other subsidy-cut options, was being studied. But he hoped that the change would be submitted to the House of Representatives next year as part of the proposal for the revision of the 2015 state budget.
He said that with the downward trend in crude-oil prices, the use of the fixed subsidies in the sales of the subsidized fuels would be more realistic.
Sofyan declined to mention the range of subsidy amounts currently under the government's review. 'We hope that we will be to decide the right amount of the fixed subsidy at the end of the year, by the time we propose the revision of the budget to the House members,' he said.
Also on Tuesday, Finance Minister Bambang Brodjonegoro said the fixed subsidy plan would give the government more funds for budget spending, as well as enabling people to pay less for the fuel they buy if the price of crude oil in the world market declines.
Bambang previously said that by using the fixed-subsidy scheme, the prices of subsidized fuels would be regularly adjusted to the fluctuation of the crude prices in the international market and the rupiah exchange rate against the US dollar.
According to the 2014 state budget, the government earmarked Rp 210.73 trillion for fuel subsidies this year, higher than the Rp 206 trillion allocated for capital expenditure (capex), which comprises funds for infrastructure-related spending. The government's decision to raise the price of subsidized fuels recently has significantly reduced the fuel-subsidy spending.
On Oct. 18, the government raised the price of subsidized Premium gasoline by Rp 2,000 (16 US cents) to Rp 8,500 per liter and by Rp 2,000 to Rp 7,500 per liter for the subsidized diesel oil.
With the current level of the crude-oil price in the world market, the prices of subsidized fuels have already achieved their economic value (market price). It means that if the government uses the fixed subsidy of between Rp 1,000 and Rp 2,000 per liter, the prices of subsidized fuels could drop away from the present level.
Indonesia has been subsidizing fuel since the first oil-price shock in the 1970s, and kept prices less than 20 US cents per liter until 2005, according to World Bank report published in March.
Before the recent increase, the price of gasoline was last increased to Rp 6,500 per liter in 2013 from Rp 4,500 per liter.
Standard Chartered Bank Indonesia chief economist Fauzi Ichsan also supported the fixed-subsidy scheme saying that it would give the inflation rate stability due to a gradual increase or decrease of fuel prices.
'Current policy on subsidized fuels had always been creating a jumping inflation rate every one or two years every time the government increased the fuel price,' he said.
Meanwhile, lead economist of the World Bank Indonesia, Ndiame Diop, said recently that the implementation of the fixed subsidy would help ease uncertainty in the state budget. It would also ease people's burden, because fuel prices would decline, if the oil prices weaken.
At present, oil prices in the world market have declined by 30 percent. If the downward trend continued, people could also enjoy lower prices for their fuels, he said.
