Bagus BT Saragih and Satria Sambijantoro, Jakarta – President Susilo Bambang Yudhoyono has prolonged the uncertainty over subsidized fuel, saying he needs time to discuss relief for the poor with the House of Representatives.
"When will we increase the price of subsidized fuel? The answer is when the compensatory funds and the social security funds are ready. The government will prepare them in the 2013 State Budget," he said. Increasing the price of subsidized fuel with no assistance for those with very little income would have repercussions on social, security and economic matters, he said.
"The government, together with the House of Representatives, will discuss this in May, although I hope we can speed up the process," he said. "When the amount of compensation is ready, then we can increase the price."
The President acknowledged that asubsidized price for Premium gasoline of Rp 4,500 (46 US cents) per liter was far too low when compared to the true market price of around Rp 10,000. The government has no intention of bringing the price in line with the market, Yudhoyono said.
Cabinet members have surmised that Premium will rise to Rp 6,500 for private cars only, but according to the President no decision has been reached, which hints at the possibility of an outright increase.
Yudhoyono defended his vacillation. "Critics said that the government has been tardy and hesitant to increase the price of subsidized fuel. My answer: I am consistent – for the government, increasing the price of subsidized fuel should be the last resort when there is no other option."
Discussing the issue with the House, SBY might encounter the same issues as in April last year, when lawmakers rejected adjustment of fuel prices to counteract nationwide protests. The 2013 State Budget Law allows the President to adjust the fuel subsidy fuel unilaterally.
"Waiting for House approval will be a difficult and lengthy process, because lawmakers will make decisions, not only on an economic basis, but from a political perspective," economist Ahmad Erani Yustika said on Tuesday. Huge economic costs are being incurred because of the uncertainty surrounding fuel subsidies, Erani said.
Citi Research economist Helmi Arman warned that cutting fuel subsidies later "may cost extra political capital" especially with Ramadhan approaching in July, when inflation usually rises as Muslims increase their spending on food and clothes.
The State Budget revision process is normally lengthy. Any decision on fuel could take up to two months, a situation certain to breed further uncertainty, Bank Danamon economists led by Dian Ayu Yustina announced on Tuesday.
Indonesia Land Transportation Owners Association (Organda) chair Eka Sari Lorena said businesspeople would inevitably increase the land transportation tariff by 35 percent when the fuel price rises, because operational costs would naturally increase.
"The price of spare parts has been climbing since 2009 but we have not adjusted the tariff. This time, we will have no choice. This fuel price hike will hurt us badly," she told reporters, predicting the impact would be considerable as people switched to private vehicles that caused congestion, particularly in Jakarta.
"If we do not raise our tariff, we will suffer losses and operators will begin to gradually slow down their operations" she said. She also said the diesel shortage that brought long lines to gas stations in many regions had forced around 25 percent of land transportation operators halt their operations.
[Nurfika Osman contributed to this story.]