Southeast Asia’s largest economy appears to be leaning towards raising fuel prices instead of reducing the use of subsidised fuel.
The idea has gained support from the public, academics, businesses and some lawmakers, said Vice Energy Minister Widjajono Partowidagdo, though lifting fuel prices requires a change in the law and so still needs parliamentary and presidential approval.
Hiking fuel prices still faces opposition from some lawmakers in parliament, because of worries it would spur inflation and cause social unrest. Sudden fuel price hikes in 1998 contributed to the downfall of autocratic leader Suharto.
Currently Indonesia’s subsidised petrol is the cheapest in Asia at 4,500 rupiah (RM1.52) a litre, just half the market rate.
The cheap fuel supports economic growth but cost the government US$18 billion (RM54.75 billion) in subsidies last year. Economists say the money would be better spent on improving poor infrastructure.
“We will hike fuel prices this year,” Partowidagdo said in an interview. “The hike should be discussed first with the parliament but it would be in the range of 1,000-2,000 rupiah.”
A price rise of that size could hurt fuel demand in the short-term, though energy analysts say buoyant car sales from an emerging middle class means the country is likely to remain Asia’s largest petrol importer.
The central bank expects inflation to near the upper end of its target 3.5-5.5 per cent target range this year if the government goes ahead with a fuel price rise, which could mean it is less likely to further cut rates.
Raising fuel prices would still have less of an impact on inflation and fuel demand than the government’s previous plan to restrict the use of subsidised fuel from April, which would have effectively doubled fuel prices for private motorists.
Lawmakers said restricting subsidised fuel could not work as there are not enough pump stations across the sprawling archipelago that sell the higher quality non-subsidised fuel.
State energy firm Pertamina says it only has one refinery on Java island that produces the fuel. Higher fuel prices could spur investment in refining and increased competition for Pertamina in retail fuel, and would also boost state coffers.
“Indonesia will not be developed if the money is spent on subsidies. The money should instead be used to build roads and fix transportation,” said Partowidagdo, a former energy academic. – Reuters
