Markus Junianto Sihaloho, Jakarta – With the government's subsidy on fuel expected to reach Rp 246 trillion ($21 billion) this year, up from an initial target of Rp 210 trillion, the incoming administration is seen needing to take a bold move to prevent the state budget from suffering a burgeoning deficit and causing the state's debts to swell.

Hasto Kristiyanto, deputy chairman of President-Elect Joko Widodo's transition team, said on Thursday that Joko's administration will not abruptly cut the subsidy and increase the price of subsidized fuel but will do it gradually in order to cushion inflationary and social impacts.

Hasto said that Joko's administration policy is to help balance the state budget, turn the public into producers and ensure that the public can still work.

Hasto said that his party, the Indonesian Democratic Party of Struggle (PDI-P), has in the past always rejected increasing the price of subsidized fuel but opted to cut fuel subsidies. Money from the subsidized fuel program could be used for other public initiatives.

In Joko's case, his administration would seek to allocate funds to social safety net programs like the Smart Indonesia Card (KIP) and Healthy Indonesia Card (KIS). The KIP will guarantee that all Indonesian children receive an education, while the KIS will ensure that all Indonesian citizens have access to medical care.

Hasto said that Joko and Vice President-Elect Jusuf Kalla's administration will take efficiency measures across sectors in an all-around effort to reduce the burden on the state budget. The government imports the majority of its fuel, and that has caused the trade balance to turn into deficit.

Gradual price increases

Joko's administration will increase subsidized fuel prices, after those policies for efficiency measures operate optimally, he said. Hasto said that the policy to increase the subsidized fuel price has to be conducted gradually in order to curb inflation. In June 2013, the government raised the price of subsidized fuel by an average 33 percent, and that cause inflation to accelerate.

Joko previously said that to keep the state budget from suffering a huge deficit, subsidized fuel price increases have to be conducted firmly and wholly instead of only partially or in certain areas. "It has to be conducted firmly but after making careful calculations," he said.

Joko said that economic, social and political impacts caused by higher subsidized fuel prices should be considered carefully. He described the energy sector as messy and said that many people were taking advantage of the disorganization through mafia practice.

The government has been pushing to build more refineries just as speculation abounds of a group trying to control fuel imports. Indonesia also seeks to use more natural gas to reduce dependence on crude oil-based products. "After that oil refineries will be built, and the mafia in the oil [sector] eliminated," Hasto said.

"The corruption rate must also decline. What's the point of reducing the fuel subsidy if corruption continues to run rampant. It will not be fair," he said. "Energy efficiency and energy conversion from fossil fuel to gas will also have to be carried out."

The president-elect also said that matters in the energy sector are not merely about the courage to remove the fuel subsidy but also about the wisdom to ensure fairness and weighting how much it benefits the public.

The government has already introduced several measures to curb consumption by prohibiting the sale of subsidized diesel in Central Jakarta and of subsidized gasoline along the Java toll road and by limiting the hours that subsidized fuel can be sold.

Joko disagreed with the newly imposed partial curb of sales of subsidized fuel, saying that such a policy is ineffective because the public will still find ways to access subsidized fuel by going to areas where the curb is not imposed.

Suryo Bambang Sulistyo, chairman of the Indonesian Chamber of Commerce and Industry (Kadin) also criticized the government's move to curb the use of subsidized fuel, calling the efforts insufficient.

"Kadin has always been in favor of the complete removal of subsidized fuel. I think the current administration has the right momentum to do just that as they don't have to worry about becoming unpopular," Suryo said on Wednesday.

The government imposed the measure to prevent the subsidized fuel from exceeding this year's 46 million kiloliter quota.

Fuel subsidy to soar

Economist A. Tony Prasetiantono warned that the cost of fuel and energy subsidies for the government could be double the cost spent to hold the recent World Cup in Brazil, saying that the cost for fuel subsidy is set to reach Rp 246 trillion, while the energy subsidy is targeted at Rp 103 trillion.

Reports say that Brazil had spent about $14 billion to host the event. Tony also reminded that subsidies for low octane fuel will run out before December while the subsidy for diesel will run out in October. He said that under such conditions, fuel subsidies for 2015 will likely soar from this year.

"Just imagine, our subsidies for fuel and electricity are twice the cost to hold the World Cup in Brazil. In Brazil they built infrastructure, while here the subsidies are for fuel and energy alone," Tony said.

As of the end of July, Indonesia had consumed 9.12 million kiloliters of subsidized diesel, or roughly 60 percent of the 2014 quota. Meanwhile, consumption of subsidized gasoline hit 17.08 million kiloliters, equivalent to 58 percent of this year's allotted amount.

Tony hoped that the next president would either increase the price of subsidized fuel early in 2015 to prevent the state budget from going into deficit or impose a new policy to ban private cars from using subsidized fuel.

Coordinating minister of economics Chairul Tanjung offered three options to control subsidized fuel consumption.

The first is for the current administration to cut subsidies, the second for the next administration to cut fuel subsidies and third for both the incumbent administration and the next to partially cut the fuel subsidy.

Chairul said he has long reminded the government about the fuel subsidies being too high and missing the target. He called for reduction in subsidies.

"Yes, I have long said that the subsidies were too much and they didn't reach the target. That's why the measure to cut the subsidy is an option that has to be taken," Chairul said.

He added that the fuel subsidy is not only the current government's problem but also an issue for the new government. He said that the elected president and vice president should talk with the current government about the transition and what measures can be undertaken, including discussion on reducing the fuel subsidy.

Source: http://www.thejakartaglobe.com/news/jokowi-seen-increasing-subsidized-fuel-prices-gradually/