RI'S GOVERNMENT MAKES FUEL PRICE HIKE CONDITIONAL ON COMPENSATION PACKAGE by Fardah

   Jakarta,  April 30, 2013 (Antara) -  After prolonged discussions, President Susilo Bambang Yudhoyono finally announced the government's plan to raise subsidized fuel prices but it is conditional on compensation package for those likely to be affected.

         "When will subsidized fuel prices be raised? When the poverty funding is ready," President Yudhoyono  told  high ranking government officials  attending  the National Development Planning Meeting here on Tuesday (April 30, 2013).

         Initially, the government  had prepared  a scenario to raise the price of subsidized gasoline and diesel oil from Rp4,500 to less than Rp6,500 a liter as of May 1, 2013.

         But, the president later said the planned price hike of subsidized fuel will be implemented only when  compensation programs for the poor is approved by the parliament.  
     The government hoped the deliberation about the revised budget at the Parliament could be accelerated. "Hopefully everything will be finalized in May because there is a sense of urgency, including about compensation for the poor," he added.

       "There should be no time gap. So It will depend on the readiness of the compensation funding. The government has prepared the plan. What our plan will be, and for how long it will be implemented, we will inform the House of Representatives (DPR) soon in the form of draft amended state budget (RAPBN-P) 2013," he added.

         Yudhoyono said the reduction of subsidized fuel consumption is a must to ease the budget's burden and maintain healthy fiscal.

         "To be frank, the state budget is not sound and less secure. If not improved, our budget deficit will exceed three percent and it will violate the existing law. With a big deficit, our economic resilience will be disturbed," he said.

          He said that state revenues in the 2013 State Budget were set at Rp1,529.7 trillion with state expenditure set at Rp1,683 trillion. This leaves a deficit of Rp153.3 trillion, or 1.65 percent of the gross domestic product (GDP).

         Of the 2013 Stage Budget, some Rp317.2 trillion was set for subsidies,  and of which Rp193.8 trillion was for fuel subsidies.

         "If not controlled, total subsidies could reach Rp446.8 trillion and fuel subsidies would be Rp297.7 trillion. This could increase the deficit to Rp353.6 trillion or about 3.83 percent of the GDP," he explained.

         He said that the relatively big subsidies for fuel oil reduced the budget set for improving the people's welfare and reducing poverty. It also restricts the funds for infrastructure development.    
    The actual economic price for gasoline and diesel oil is estimated at Rp9,500 per liter. But, the government so far has provided a subsidy of about Rp5,000  per liter by selling it at Rp4,500 per liter, which is the cheapest in the region, for both private and public transportation vehicles.

         The government had previously planned to introduce a dual pricing system where it will maintain its current fuel price at Rp4,500 per liter, for public transportation vehicles and motorbikes, but raise it to Rp6,500 per liter for private cars.

        However, the government later announced that it would drop the dual pricing system, and choose a single pricing scheme where the price would be raised from Rp4,500 per liter to less than Rp6,500 per liter.

         "The government is likely to apply a single price system based on the desire of the people, and it will be set at a price of lower than Rp6,500 per liter," Energy and Minister Resources Minister Jero Wacik said recently.

         Explaining the government's new policy,  Coordinating Minister for People's Welfare Agung Laksono said the government will give compensation to the economically weak to maintain their buying power with regard to the fuel price hike plan.

         "Any policy that might cause inflation will be compensated to maintain the people's purchasing power," he said following the president's announcement.

         The compensation package for the underprivileged families  consists of four programs, namely the distribution of subsidized rice for the poor, education scholarships, temporary direct cash transfers, and conditional cash handout scheme called the Family of Hope program.  
  The value of the compensation funding is still being calculated and will be put forward in the revised budget, he said.

        The State Logistics Body (Bulog) has expressed its readiness  to increase rice supply for the poor when the government increases the prices of subsidized fuel.

         "We are ready to raise the volume at whatever tonnage, because Bulog has ample stocks of rice," Bulog President Director Sutarto Alimoeso said on April 30, 2013.

         The government has so far provided 15 kg of rice to each underprivileged family, which is adequate to meet 30-40 percent of the recipient's needs.  
If each family will be given 30 kg, it will meet up to 60-70 percent of the family's needs. The government distributes around 230,000 tons of rice per month.

         Bulog's rice stocks currently reach more than 2.5 million tons, or adequate to cover the nation's demands for 10 months.

         "I principle, Bulog is ready to allocate more rice for the poor if needed. When the fuel prices are increased, certainly the supply of rice for the poor will be surged," he said.

         In 2012, the Indonesian government allocated Rp2.4 trillion for 1.5 million targeted families under the Family of Hope program, Rp5.4 trillion for scholarships for 8.2 million economically students, and 3.6 million tons of subsidized rice for 17.4 million poor families.

          Hayono Isman, a member of the Commission I of the House of Representatives (DPR), recently reminded that subsidized fuel price hike could burden the people because basic necessity and other commodity prices will also increase.

          Therefore, if the government fails to explain the price hike policy clearly and properly, it would cause public dissatisfaction and could even create social unrest, as well as bad impacts on the general elections which would be held in 2014, he warned.

         Yudhoyono, who is concurrently the ruling Democratic Party's chairman, cannot run for president next year after serving two terms.

         But his party has set a target to win at least 15 percent of the national vote in the 2014 legislative elections.

         In the parliamentary election of 2009, the party could rely on 20.8 percent of the national vote. ***3***
(f001/H-YH)