Dion Bisara – The House of Representatives approved on Friday a hefty 35 percent increase in fuel subsidies amid speculation that the government was planning to raise subsidized fuel prices this year.

Under the bill, the government will spend an additional Rp 33 trillion ($3.8 billion) on fuel subsidies this year, despite plans to cut funding entirely by 2014.

The revised 2011 budget raised energy subsidies across the board, earmarking Rp 127.9 trillion for fuel subsidies and Rp 65.6 trillion for electricity subsidies – a 61 percent increase over last year's budgeted electricity funds. The revised budget totals Rp 1,320.8 trillion, up from original forecasts of Rp 1,229.6 trillion.

The government had proposed a Rp 120.8 trillion budget for fuel subsidies earlier this month. That amount was 35 percent higher than the original budgeted amount of Rp 96 trillion. Electricity subsidies were also lower, set at Rp 40.7 trillion in the original budget.

Critics called the move short-sighted, explaining that rising fuel prices would only drive fuel subsidies higher in the coming years. "In the long run, oil prices will keep increasing and such inaction would burden us further," said Marwan Batubara, executive director of the natural resources think tank Indonesian Resources Studies.

Marwan said President Susilo Bambang Yudhoyono was unlikely to risk raising fuel prices in the current political climate. "This has nothing to do with the economy of the poor," Marwan said. "The momentum is just not right for the government."

Yudhoyono's popularity has faltered amid recent graft allegations targeting senior members of the president's Democratic Party.

In the short term, the House could impose an additional vehicle tax on motorists to recoup some of the money spent on subsidies, Marwan said. "But for the long term, the government has to come up with a reliable scheme that can channel the subsidy to the poor directly," he said.

According to a World Bank report released earlier this year, the top 10 percent of the population receive Rp 135,000 in fuel subsidies per capita, while the poorest 10 percent receive Rp 23,000.

And any move to increase fuel subsidies only distorts the budget's structure, said Milan Zavadjil, a senior resident representative of the International Monetary Fund in Indonesia. "Fiscal policy needs to be re-oriented away from subsidies and toward infrastructure and social spending," Zavadjil said in a written statement on Friday.