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strong>June 7, p3

The government says that industrial growth for this year remains on track despite the planned increase in the price of subsidized fuel later this month.

Industry Ministry secretary-general Ansari Bukhari said the manufacturing sector would not be affected because companies involved in industrial activities were already banned from using subsidized fuel.

'€œThe fuel-price rise will not affect production costs as the local industry already uses non-subsidized fuel,'€ Ansari said.

Higher fuel prices would push up transportation costs slightly, thereby contributing a minor increase to total production costs, Anshari added.

The government is due to increase the price of subsidized Premium gasoline by Rp 2,000 (20 US cents) to
Rp 6,500 per liter and the price of diesel by Rp 1,000 to Rp 5,500 this month once it secures approval from the House of Representatives.

Your comments:

The '€œfuel-price hike won'€™t affect industrial growth'€. Perhaps correct but it will affect inflation and the cost of food, products and services.

So people will demand higher salaries and that could be the start of the downward spiral.

Jorith Arbier

An Organization of the Petroleum Exporting Countries (OPEC) study in 2006 noted that removing fuel subsidies would lop a few percentage points off economic growth and raise unemployment for up to 5 years.

And this projection is based on future positive economic conditions in any case. The government will also lose momentum for entrepreneurial activity if the consumer subsidy is cut.

People simply won'€™t have the money to start marginally profitable businesses without it, what they define as '€œcottage industry'€ is in many cases people'€™s subsistence.

In my past articles, I have written that the fuel subsidy needs to be maintained. It is really the only demonstrated ownership '€œquotient'€ that most developing countries have on the very ownership of their own resources.

I am not arguing that fuel subsidies are misused or even that they generate more pollution and traffic jams, but without the subsidies, people'€™s lives will change for the worse due to rising costs and squeezed incomes.

I have stated the government must go after producer subsidies first (promises to international oil investors that leave Indonesia on the financial hook into perpetuity) to make a serious dent in the budgetary shortfalls and weakening rupiah.

Will Hickey