Govt proposes huge fuel subsidy hike

The fuel subsidy may jump by 334 percent of its initial figure due to soaring oil prices, the government said on Tuesday as it proposed a revision to the 2004 state budget, The Jakarta Post newspaper reported in its Wednesday edition.

A fuel subsidy is necessary because the country also imports fuel to meet national demand.

Minister of Finance Boediono said the government might have to spend a whopping Rp 63 trillion (US$7.08 billion) for the fuel subsidy -- compared to Rp 14.5 trillion as budgeted initially -- as the oil price assumption had been revised upward to $36 per barrel from $22 per barrel to better reflect current developments in international oil prices.

Oil prices have been soaring upon concerns over disruptions to supply and strong demand from energy-hungry countries like China and India, reaching to near $50 per barrel last week.

The government has said it would not raise fuel prices at home despite soaring world prices to ensure political stability during election year. Fuel prices were last raised in January 2003.

However, high oil prices have renewed concerns about the costly fuel subsidy, as the revised figure almost equals the Rp 69.6 trillion development spending for this year, and because the subsidy has been enjoyed largely by car owners of the upper income bracket -- not to mention the rampant smuggling of subsidized fuel products to neighboring countries.

The House will decide within a month whether to accept the government revision of the 2004 state budget.

Meanwhile, Boediono said the expanded fuel subsidy would not have a serious impact on the state budget, as deficit was projected to increase only slightly, from 1.2 percent to 1.3 percent of the gross domestic product. (*)