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Fuel offsets crimp state budget, experts say

Jakarta Globe - June 22, 2013

Anastasia Winanti Riesardhy & Agustiyanti – Payments for the poor designed to compensate for the impact of the fuel price rise will undermine the benefit to the state budget of the cuts to subsidies, analysts said on Saturday, as the first day of increased pump costs appeared to go smoothly.

Officials began distributing direct cash handouts, known as BLSM, hours after the new price of subsidized fuel came into force at midnight on Friday.

The price of subsidized gasoline went up from Rp 4,500 per liter to Rp 6,500, and the price of subsidized diesel was increased from Rp 4,500 per liter to Rp 5,500.

National Development and Planning Minister Armida Alisjahbana said at the announcement of the price-rise timing on Friday evening that 15.5 million poor people are eligible to receive the cash handouts, which offer Rp 300,000 ($302) per family in two installments.

The first payments started on Saturday, Armida said, distributed with the help of postal agency Pos Indonesia. Jakarta is among the first cities to receive the handouts. The first stage of the program is expected to be completed on July 1, reaching all eligible people across all 33 provinces.

But Indonesian Employers Association (Apindo) chairman Anton Supit said the program undermined the purpose of the cut to fuel subsidies: to free up government funds for other programs.

"What we hoped for is that [subsidy money] would be used to finance education, infrastructure, sustainable programs to create better human resources but instead the government is distributing BLSM," he said.

Anton said the cash handout program was motivated by politics rather than benefiting the economy or alleviating poverty. "There are too many political games [surrounding the handout]. It is all to do with popularity," he said.

Although four political parties opposed the fuel price hike, the House of Representatives unanimously agreed to the government's proposal to allocate Rp 9.3 trillion for the cash transfers scheme on Monday.

Economist Faisal Basri said the BLSM will not have a lasting or substantial impact on the country's poor and negated the government's plan to fight a swelling budget deficit.

Faisal noted that the revised state budget approved by the House on Monday forecast an increase in the budget deficit, which Faisal blamed on bureaucratic inefficiencies. "I think people wouldn't mind if the price of [subsidized] fuel increases, even doubles, as long as politicians are not corrupt," he said.

Jakarta Governor Joko Widodo on Monday said he disapproved of the monetary assistance program but argued that he could not halt the scheme because it is administered by the central government.

"If possible, the cash should be given to productive home industries and small-scale enterprises. That is better," the governor said. "Giving out cash does not educate people."

Nurhayati Ali Assegaf of the Democratic Party, chaired by President Susilo Bambang Yudhoyono, defended the program, saying that similar schemes work in other countries.

But analysts said that other countries are moving away from direct cash handouts and investing in more beneficial programs like free or affordable health care.

The program is also prone to corruption or misuse, Anton said. In 2008, the government increased the price of subsidized fuel to Rp 6,000 and distributed similar handouts, known as the BLT, but claims abounded that some of the cash was disbursed to households not entitled to it.

Coordinating Minister for the Economy Hatta Rajasa said the government had learned from the 2008 experience and earmarked Rp 360 billion to monitor the distribution if funds. On Saturday, the government introduced a hotline to report misuse.

As Yudhoyono sought a second term in 2009, his administration lowered the price of subsidized fuel back to Rp 4,500. Yudhoyono's reelection campaign boasted that he was the only Indonesian president to ever lower the price of subsidized fuel.

Four years later the economy suffered, Anton said. "This is a matter of leadership. Leaders should be stringent, our future rests on them," he said.