Price of Subsidized Fuel Will Be Hiked In November: Minister

Jakarta (Antara Bali) -- The government has confirmed that the price of subsidized fuel will be increased in November, although the exact hike has yet to be finalized.

"We have decide to hike the price of subsidized fuel this month (November)," Coordinating Minister of Economic Affairs Sofyan Djalil said here on Wednesday.

Djalil added that the government will be reallocating fuel subsidies to more productive sectors keeping its business objectives in mind.

"That the subsidies do not reach the intended target is a concern for us from the business perspective. So we will reallocate them to a more productive sector," the minister affirmed.

At the same occasion, the Chairman of the Indonesian Chamber of Commerce and Industry (Kadin), Suryo Bambang Sulisto, stated that the body had urged the government to revoke fuel subsidies because it was not utilized appropriately.

"Fuel subsidies should be used by the intended parties. However, they are utilized only in unnecessary sectors, which ultimately leads to a price disparity," Sulisto explained.

He further noted that it was a misconception among people that withdrawing fuel subsidies would worsen their condition.

"It is a misconception that people will suffer if the subsidy is revoked. In my opinion, people will be far more miserable if our economy weakens due to the allocation of fuel subsidies. We are unable to carry out many activities that would be more useful to the people," he stated.

The Kadin chairman also pointed out that fuel subsidies would be reallocated to more useful fields such as education, health, and infrastructure development. With more funding, these sectors can benefit the society better.

"Revoking fuel subsidies will do away with economic distortion and smuggling. We can use the funds for education, health and infrastructure development instead," he emphasized.

Earlier, a Central Statistics Agency (BPS) official said that Indonesia's inflation rate this year could exceed the target of 5.3 percent in the revised 2014 state budget if the government increased the price of subsidized fuel.

"If there is a fuel price hike, the inflation rate will most likely exceed six percent," BPS Deputy Chief for Distribution and Service Statistics, Sasmito Hadi Wibowo, stated.

Wibowo added that a subsidized fuel price hike of Rp3,000 per liter will contribute 1.7 percent to the inflation rate, in addition to the inflation caused by hikes in transport fares and food.

"If it had been raised on November 1, it would have directly contributed 1.72 percent to the inflation. Now, as the announcement on the fuel price hike has been postponed, it will directly contribute less than 1.7 percent. The indirect impact of the hike, however, will depend on the commodities affected by hikes in transport fares," he explained.

Usually, inflation rates are high at the end of the year due to Christmas and New Year celebrations, the BPS official noted. So ideally, the price of subsidized fuel should have been raised in November as it would have reduced its impact on the inflation rate.

" I don't believe it (price of subsidized fuel) will be raised in December because Christmas and New Year celebrations will already contribute to the inflation rate. Inflation rate in December is usually close to 1 percent. So if another 1.7 percent is added to it, then what will the inflation rate be? The rate in November is at a five-year low, and I think the public is prepared for a fuel price hike now," Wibowo noted.

The price of subsidized fuel was last raised by the government at the end of June 2013 by 2,000 a liter. The fuel price hike had contributed 3.29 percent to the July 2013 inflation, which brought the year-end inflation rate to 8.38 percent.

The calendar inflation in the January-October period this year was recorded at 4.19 percent, and the year-on-year inflation rate hit 4.83 percent.

Furthermore, Bank Indonesia had predicted that the inflation rate will be recorded at 4.5, plus/minus one, percent this year without any fuel price hike. (WDY)