Indonesia MPs back budget package that would allow fuel price hikes

Reuters News
Posted: Jun 15, 2013 6:56 AM
Indonesia MPs back budget package that would allow fuel price hikes

By Adriana Nina Kusuma

JAKARTA (Reuters) - Indonesian parliamentarians gave their backing to budget revisions that pave the way for long delayed cuts in fuel price subsidies, blamed for sapping the budget and undermining confidence in Southeast Asia's biggest economy.

The revisions need final approval by a plenary session of parliament, expected on Monday.

They include around 9 trillion rupiah ($910 million) to protect the poor from an average 33 percent hike in fuel prices.

President Susilo Bambang Yudhoyono had insisted on the additional sum before he agreed to the increase, an issued he has agonized over for months. Some officials have said he would likely make his decision next week.

Commission chairman Ahmadi Noor Supit said six parties -- equivalent to about 70 percent of the votes -- backed the revisions with the compensation.

The issue comes at a crucial time for Indonesia as rapid growth starts to temper and global investors begin to look away from emerging markets with the prospect that the United States might start to increase interest rates.

Fuel subsidies make petrol prices in the former OPEC member among the lowest in the region, which encourages both consumption and smuggling, and are estimated to have cost the government around $20 billion last year. The finance ministry has said it could save $4 billion if the price rises go through.

The government has warned that growing demand for subsidized fuel, unless prices rise, could exceed 3 percent of GDP. The initial budget had put the deficit at just 1.6 percent.

"It has been affecting the credibility of the government," said Standard Chartered senior economist in Jakarta, Fauzi Ichsan.

Ratings agencies have warned that the government's dithering over implementing policies is damaging confidence in the economy.

But with memories of how fuel price rises helped bring down long-serving President Suharto 15 years ago, Yudhoyono has repeatedly avoided taking a decision.

And with next year's general and presidential elections in their sights, the major political parties have looked more concerned about how the issue might affect their ability to win votes. ($1 = 9,882 rupiah)

(Writing by Jonathan Thatcher; Editing by Ron Popeski)