Next government will raise fuel prices in 2005

The two presidential candidates and their running mates were forced to address what may be the toughest economic challenge next year -- raising fuel prices at home -- when they met a group of economists during a televised dialogue late on Wednesday, The Jakarta Post newspaper reported in its Thursday edition.

Presidential candidate Susilo Bambang Yudhoyono acknowledged he might have to cut the costly fuel subsidies and consequently raise fuel prices next year if international oil prices remained high.

Responding to a question from panelist Lin Che Wei, Susilo, who has so far been leading in the opinion polls, said that cutting the subsidies was crucial to avoiding fiscal disaster.

But he was quick to add that any cut in the fuel subsidy would not cause suffering for low-income people.

"We aim to apply a targeted subsidy," said Susilo, who got the chance to go first during the second day of a two-day dialog.

Meanwhile, President Megawati Soekarnoputri failed to give a direct answer when panelist Mari E. Pangestu raised the same question, saying that the next government would have to face the tough reality that oil prices would not decline to below $30 per barrel in the near future (the Megawati government has proposed what many see as an unrealistic oil price assumption of $24 per barrel and higher fuel subsidy spending of Rp 36 trillion in the 2005 draft state budget.

However, Mega's running mate, Hasyim Muzadi, acknowledged that the next government would eventually have to adopt the politically unpopular measure of cutting subsidies due to budget constraints.

"Subsidies will be removed, although gradually, and there will be compensation (for low income people)," said Hasyim, who seemed to be more confident in answering questions than his would-be boss.

Renewed debate on whether the government should continue with the current expensive fuel subsidy has recently emerged after oil prices soared to record levels of more than US$45 per barrel, which may force the government to boost this year's fuel subsidy by 344 percent to Rp 63 trillion from the initial allocation of Rp 14.5 trillion (by comparison, development spending in the current state budget is Rp 67 trillion)

The current government has decided not to raise fuel prices this year due to the fear of social and political unrest during the current election season (former authoritarian president Soeharto was forced to step down partly due to his decision -- under pressure from the IMF -- to raise fuel prices). But critics say that the fuel subsidies mainly benefit car owners, and that the huge sums involved would be better allocated on other purposes, such as education or defense. (*)