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Indonesia may raise fuel prices by 50% in October JAKARTA - Indonesia's government may raise fuel prices by at least 50 percent in October to avoid missing the budget deficit target as surging global prices boost the cost of subsidies, Planning Minister Sri Mulyani Indrawati said.

The government, which is still debating the extent of the increase, will continue raising tariffs gradually to remove subsidies in the next 36 months, Sri Mulyani said. Indonesia, Southeast Asia's biggest economy, plans to limit the budget deficit at 1 percent of gross domestic product.

``If we increase by October then I think the minimum is going to be 50 percent, according to the need to serve our budget sustainability,'' Sri Mulyani said in an interview yesterday. Subsidized gasoline sells for less than half the international price.

The government plans to raise fuel prices in early October, Cabinet Secretary Yusril Ihza Mahendra said Sept. 12. President Susilo Bambang Yudhoyono, who took office in October, said Aug. 31 the subsidy bill may reach 138.6 trillion rupiah ($13.8 billion) this year. He faces a potential escalation in unrest by breaching his pledge that the 29 percent average fuel price increase in March would be the last this year.

Indonesia's rupiah fell as much as 11 percent last month, while stocks tumbled 16 percent, after crude-oil prices rose to more than $70 per barrel. The higher prices increased the cost of government-funded fuel subsidies and forced oil importers to buy more dollars to pay for the commodity.

Currency, stocks

The currency and stock market recovered most of their losses after Yudhoyono pledged to cut fuel subsidies and reduce demand for oil. The central bank meanwhile raised its benchmark interest rate three times, by a total of 1.5 percentage points, to make the currency more attractive against the dollar.

Hundreds of bus drivers, vendors and factory workers staged a protest in Jakarta on Sept. 4 against the plan to raise fuel prices. An attempt to increase tariffs in 1998 contributed to protests that triggered the ouster of former dictator Suharto. In 2003, street protests forced Megawati Soekarnoputri's government to backtrack on plans to raise prices.

``The fuel subsidy issue risks causing a lot of social unrest in Indonesia,'' said Michael Coleman, who manages about $30 million of assets including petroleum at Singapore-based hedge fund Aisling Analytics Pte. ``The government can't go cold turkey at one go. The subsidies will have to be removed, but I'd expect a gradual removal.''

Preempt protests

To preempt protests the government plans to give cash compensation to 15.5 million families before raising fuel prices. The government will start paying 100,000 rupiah to families earning less than 175,000 rupiah a month from Oct. 1, Sri Mulyani said. The amount of payment is based on the assumption that a family of five uses 4 liters of kerosene a month per person, she said. Indonesia caps kerosene prices at 700 rupiah or about a 10th of the global price.

The idea is to make raising fuel prices ``politically palatable for people,'' Sri Mulyani said. To ``preempt the political risk of this policy, we designed the direct subsidy for the poor to compensate the increase in kerosene price. No one really dared to touch this commodity.''

The amount will also help the poor tackle faster inflation after the increase in fuel prices, she said. The government expects inflation may accelerate by as much as 5 percentage points after the increase in tariffs.

Consumer prices

Indonesian consumer prices rose 8.3 percent in August after increasing 7.8 percent in July. Indonesia's inflation rate reached a 26-month high of 8.8 percent in March after the government boosted fuel prices. ``Inflation is our main concern as it's certainly going to push the cost of services, prices of food, goods higher,'' said Muhammad Hanif, who helps manage the equivalent of $902 million of assets at Danareksa Investment Management in Jakarta. ``The central bank rate will likely be above 10 percent, thus hurting bond prices.''

In Malaysia and Thailand, governments are cutting fuel subsidies to ease their financial burden as crude oil costs surged to records. Oil has risen 53 percent in New York this year, more than the 34 percent gain last year and the 4.2 percent in 2003. The government is counting on higher fuel prices to slow demand. Indonesia's fuel demand may reach 65.6 million kiloliters this year, 10 percent higher than the initial forecast of 59.6 million kiloliters, Ari Soemarno, director of trading and marketing at the state oil company, PT Pertamina, said on Sept. 5.


In August, the international price of 88 RON gasoline, the type that is subsidized by the government, was 5,700 rupiah (55 cents) a liter, Purnomo said on Sept. 5 at a parliamentary hearing. The government, through the state oil company Pertamina, sells the fuel at 2,400 rupiah a liter. Diesel is sold at 2,100 rupiah (20 cents) a liter, or about a quarter of retail prices in Singapore, Asia's biggest oil- trading center.

Indonesia sells kerosene for as little as 700 rupiah (6.8 cents) a liter for households and individual consumers, compared with 57.3 cents a liter in Singapore, based on prices by Platts, an oil-pricing service.

Link to related event Related event:
Fuel price hike 1 October 2005

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13 September 2005 · Indonesia to pay fuel subsidies to poorest
12 September 2005 · Indonesia says to hike fuel prices in early October
09 September 2005 · Oil smuggling losses IDR8.8 tln annually
07 September 2005 · India and Indonesia react to oil price rises
05 September 2005 · Jakarta workers protest fuel price rise

Posted in Economy @ 14 September 2005 07:14 CET by Jeroen · 'Blog' RSS feed · permalink

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Fuel scarcity worsens before price hikes

Gasoline and diesel shortages worsened across Indonesia as the government's scheduled price increase on Oct. 1 draws near, Jakarta Post reported on Tuesday. Filling stations were packed with long lines of vehicles, while police officers desperately tried to track down on and nab people thought to be hoarding fuel until the price goes up, according to the Jakarta Post.

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I'm glad to have an inlaw visitor dirumah. He can fill up my tank and jerrycan tomorrow at the gas station. This will take him at least 2 hours because of the kilometer queue. This since Monday morning. Emoticon: Puh!

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