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Kalla: No need for another fuel hike JAKARTA - Concerns that the recent surge in global oil prices could lead to another fuel price hike this year have eased for the moment, after Vice President Jusuf Kalla said the government had no immediate plans to raise fuel prices. "I don't think a fuel price hike is necessary at the moment," Vice President Jusuf Kalla said Monday. "What we have to do now is to use energy more efficiently, fix up our power sector, and think up of other ways to save fuel."

Kalla admitted the current spike in crude prices -- reaching US$75 a barrel late last week -- would affect the state budget's oil price assumptions and fuel subsidy allocations -- but how much and whether it threatened the nation's fiscal sustainability had yet to be determined, he said. The government is assuming oil prices will average $57 a barrel for this year's budget, and it has allocated Rp 54.27 trillion (about US$6.46 billion) for fuel subsidies.

"Current oil prices at $75 a barrel are still subject to ups and downs, and we hope that the price will come down in the near future," Kalla said. He said rising oil prices could also mean an increase in the country's oil export revenues, which were expected to act as a counterbalance to any fuel subsidy increase. Separately, Coordinating Minister for the Economy Boediono expected the rupiah's current gains against the U.S. dollar to help level out any possible adverse effects from the recent rise in crude prices.

"There are many assumptions in the budget, which are actually balancing each other out now," he said. "Take the rupiah for example, which was assumed at Rp 9,900 a dollar but is now around Rp 8,900. So we have a gain of Rp 1,000 to help compensate any impacts to the fuel subsidy." The rupiah traded higher at Rp 8,825 a dollar Monday, from Friday's Rp 8,900. The rupiah's exchange rate against the dollar affects fuel subsidies because the country imports around a third of its oil needs.

Boediono said the government would not rush to revise the oil prices and other economic assumptions in the 2006 state budget despite the oil price hike. He said the government would make the revision in June as scheduled. The budget's oil price assumption refers to the Indonesian Crude Price (ICP), a quarterly pricing index for each of the country's crude products weighted against the Tokyo-based RIM Intelligence, Singapore-based Platt's index and the Hong Kong-based Asian Petroleum Price Index.

The ICP is usually some $5 below international crude prices. Data from state oil and gas firm PT Pertamina shows the ICP for 15 of the country's crude prices ranged between $54.2 and $66.09 during this year's first three months. The government currently subsidizes kerosene for households, and regular gasoline and diesel fuel products sold at gas stations, while fuel products sold to industry are no longer subsidized with prices set monthly by Pertamina based on international levels.

Meanwhile, chairman of the Indonesian Food and Beverages Association Thomas Dharmawan said adverse effects of the oil price hike on producers were so far negligible, because Pertamina had not immediately raised domestic fuel prices for industry. Businesses had also anticipated future price hikes by stepping up fuel-saving efforts and turning to alternative fuels like coal to support their production process, he said.

To stop industries from cutting production or laying off workers, Thomas suggested the government continue with plans to provide fiscal incentives for five industries -- textiles, footwear, electronics, automotive and the food and beverage sectors. Last year's oil price surge to $70.58 a barrel forced the government to twice cut fuel subsidies to avoid a budget blowout.

The increased fuel prices caused inflation to surge to 17.11 percent for the year and the central bank to up its base lending rate to 12.75 percent, slowing down economic growth to only 5.6 percent last year.


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Posted in Economy @ 25 April 2006 07:09 CET by Jeroen · 'Blog' RSS feed · permalink






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