Jakarta – The ability of Mr Susilo Bambang Yudhoyono, who is poised to become the country's sixth president, will be sorely tested when he comes to grips with the country's fuel subsidy policy.
Top officials and businessmen agree that the subsidy needs to be reviewed urgently as it is ineffective and puts too heavy a burden on the state budget. "We suggest the elimination of subsidies on bunker oil, premium petrol and industrial diesel oil. The subsidies for automotive diesel oil and kerosene should be maintained for the moment, as these types of fuel are mostly used by the poor,' Minister of Energy and Mineral Resources Purnomo Yusgiantoro said on Tuesday.
The current government launched several years ago a programme to gradually scrap fuel subsidies, but it put the programme on hold this year to avoid unrest breaking out during the election. In the past, fuel price increases have led to widespread protests and riots – a political liability for any president.
The situation was made more acute in March when Indonesia – an oil producer which is a member of the Organisation of Petroleum Exporting Countries (Opec) – became a net importer for the first time. Initially, the Megawati government had allocated 14.5 trillion rupiah (S$2.7 billion) for the fuel subsidy this year. However, since the government is determined not to raise fuel prices despite soaring worldwide oil prices, the subsidy may more than triple from the initial figure.
In the revised 2004 state budget, currently being deliberated by the House of Representatives, the government proposed a whopping 63 trillion rupiah fuel subsidy, almost equal to the 69.6 trillion rupiah proposed for development spending throughout the year.
For next year's budget, the current government has proposed 33.6 trillion rupiah for the subsidy, at an assumed oil price of US$24 (S$40) per barrel.
In reality, the subsidy could be much higher as there is a consensus among oil traders that the realistic price of oil will be about US$40 per barrel throughout next year.
The ballooning fuel subsidy has caused concern as it has hampered the government's efforts to promote education and health programmes.
Critics note that it has been enjoyed by car owners rather the poor, and a large volume of the subsidised fuel has been smuggled out of the country.
Mr Bambang pledged earlier in a televised debate to apply a more targeted and "pro-poor' fuel subsidy in order to strike a balance between reducing pressure on the state budget and protecting the poor.