Dion Bisara – The government plans to increase this year's subsidies for energy and other basic commodities in what some analysts see as a populist policy to help prop up its sagging popularity amid the split in the ruling coalition.
Finance Minister Sri Mulyani Indrawati said on Thursday that the government planned to spend an extra Rp 43.9 trillion ($4.7 billion) on subsidies this year. About 84 percent of that would be for gasoline and electricity, while the remainder would be earmarked for fertilizer and food commodities. The additional subsides will raise the total to Rp 201.8 trillion.
She said the government would submit the plan to the House of Representatives for approval on Monday as part of a proposed revision to the 2010 state budget. Some of the budget assumptions would also be revised, including a foreign exchange adjustment to Rp 9,500 per dollar from Rp 10,000; inflation to 5.7 percent, up from 5 percent; and oil prices at $77 per barrel, up from $65.
The plan comes as President Susilo Bambang Yudhoyono has been struggling with a political rift among parties in his Democrat-led coalition over the Bank Century rescue in 2008.
Analysts say he needs populist policies to win more public support as two of the top coalition members, the Golkar Party and Prosperous Justice Party (PKS), have broken ranks and joined opposition parties in demanding Sri Mulyani and Vice President Boediono be held responsible for the bailout.
"Electricity or fuel-price adjustments are definitely off the table this year," said PT Bank Danamon economists Helmi Arman and Anton Gunawan in a report quoted by Bloomberg. "There's still a long road ahead until the Century problem is resolved," they said, adding that increased non-energy subsidies were a possible measure to shore up popular support.
Sri Mulyani said the government would increase subsidies for gasoline by Rp 20 trillion, electricity by 16.7 trillion, fertilizer Rp 4.4 trillion and food Rp 2.8 trillion.
If approved by the House, total subsidies for energy alone would swell to Rp 143.2 trillion, much higher than last year's Rp 99.9 trillion, and be the second-largest energy subsidy budget over the last 10 years after reaching Rp 223 trillion in 2008. The higher fertilizer and food subsidies this year would be the highest in the past decade.
The 2010 budget deficit, Sri Mulyani said, would expand to 2.1 percent of gross domestic product, from 1.6 percent previously. To help cover the extra spending, the government would take about
Rp 1.2 trillion in additional borrowing and use the Rp 38.3 trillion left over from the last budget. "It's simple," Coordinating Minister for the Economy Hatta Rajasa said. "We do not increase the electricity price and domestic fuel price. Meanwhile, the global oil price is increasing. Subsidies therefore have to be increased."
Arman said he thought every effort would be made to delay any upward fuel price adjustment because "doing otherwise would be deeply unpopular."
Gasoline price hikes in the past have caused political unrest and had been among the factors contributing to the downfall of former President Suharto in 1998.
Yudhoyono's approval rating fell to 70 percent last month from 85 percent when he won the election, according to a poll by the Jakarta-based Indonesian Survey Institute (LSI), which questioned 2,900 respondents nationwide. The survey added that the Bank Century saga had driven the fall in the president's popularity.