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New fuel price may be imposed this week: Minister
New price: An attendant refuels a bajaj at a gas station in Cikini, Central Jakarta, on Monday
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span class="inline inline-center">New price: An attendant refuels a bajaj at a gas station in Cikini, Central Jakarta, on Monday. Coordinating Economic Minister Sofyan Djalil said the government was discussing the new fuel-subsidy scheme and that there would be new fuel prices on Jan. 1, 2015. JP/Wendra Ajistyatama
Indonesians could be bracing for new fuel prices in the next few days, as a top economic minister has hinted that the current price of subsidized fuels could be lowered sooner rather than later due to the falling trend of global oil prices.
'The people might be buying subsidized fuel with new prices on New Year's day, Jan. 1,' Coordinating Economic Minister Sofyan Djalil told reporters on Monday.
He also signaled that the adjustment would be followed by the implementation of a fixed-subsidy policy, where a fuel subsidy would be fixed at certain amount, say Rp 500 or 1,000 per liter, to safeguard the state budget against any unwanted fluctuation of oil imports due to external factors.
'We are now discussing all the available options given the current market oil price. We want to implement a policy so that our state budget would not be held hostage [by oil prices and exchange rate movements],' said the minister.
On Monday, the Office of the Coordinating Economic Minister held a meeting with the Trade Ministry, Bank Indonesia (BI) and the Central Statistics Agency (BPS) to discuss the possible inflationary impact of the policy's implementation.
'Yes, that [the fixed-subsidy policy] was among the issues that we discussed in the meeting and we would warmly welcome it if such a structural reform to the country's subsidy policy was put into implementation,' BI Governor Agus Martowardojo said after the meeting.
In November, President Joko 'Jokowi' Widodo increased the prices of subsidized fuels ' Premium gasoline was increased by 31 percent to Rp 8,500 per liter and diesel was increased by 36 percent to Rp 7,500 per liter ' in his bid to reallocate costly fuel subsidy spending to growth-generating infrastructure projects.
However, the falling trend of oil prices means that the price of both Premium and diesel fuels in Indonesia are now trading at a more expensive price than their true economic value.
On Monday, the price of international benchmark Brent oil was traded at US$60.10 per barrel for the February settlement, as data from the ICE Futures Europe exchange show. Brent oil may slide to as low as $50 a barrel in 2015, according a Bloomberg survey of 17 analysts.
Economists from Morgan Stanley have predicted that the Indonesian government would no longer subsidize Premium gasoline at the current price if Brent falls below $66 per barrel.
The implementation of the fixed-subsidy policy could bring 'disinflationary relief' for Indonesia, argued Wellian Wiranto, an economist from OCBC Bank in Singapore.
Inflation could average 6.7 percent next year if the fuel subsidy is fixed at Rp 1,000 per liter, assuming that Premium gasoline would be lowered to around Rp 8,000 per liter, he predicted. That compares with OCBC Bank's baseline of 7.4 percent in the case of no fixed-subsidy policy.
'For a central bank that has had its hands full fighting a multi-front battle ' against currency volatility, inflationary pressure, current account deficit and a growth slowdown amidst an uncertain global environment ' that [lower inflation rate due to the fixed-subsidy policy] will be a holiday gift that keeps on giving indeed,' Wellian said.
