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June 13th, 2013 
Peter Nolan
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Indonesia’s Vice President Boediono has admitted the country’s $20 billion fuel subsidy program is inefficient.
Petrol and diesel fuels are heavily subsidised in Indonesia and sold to the public at as little as half the market rate.
The World Bank has estimated it has the lowest fuel prices of any net oil-consuming nation in the world.
Vice President Boediono has told Australia Network’s Newsline the government is fully aware of the problem.
“I can only give you assurance that action can be done in time,” he said.
“Removing altogether subsidies is just not realistic – I think people need some kind of subsidies – even fuel subsidies.
“We have to think, one way or another, how to get rid of it gradually, but certainly I don’t think we can do that in one or two years.”
Indonesia’s finance minister has said the subsidy could cost as much as $23 billion for 2013 – and fuel and electricity subsidies account for up to 20 per cent of the government’s total budget.
For about 100 million Indonesians who live on $2 a day or less, an increase in fuel costs is likely to lead to higher food prices.
Suryo Sulisto from Indonesia’s Chamber of Commerce says if the government abolishes the subsidy completely, it could divert the funding to other projects to benefit those people.
“[The concern] is that it will create a heavy burden for the people,” he said.
“But…if you raise it 500 rupiah, 1000 rupiah or 2000 rupiah, you’ll have the same affect anyway.
“In our opinion we think you’ll bring more benefit if you go to international pricing…get rid of this one structural problem that we’re facing year after year.”
The high cost to the government of the fuel subsidy is also causing concern among foreign investors.
On Tuesday, Indonesia’s President Susilo Bambang Yudhoyono delivered a televised address aimed at calming market volatility in the region.
Vice-President Boediono has also made public statements of economic openness, amid concerns the country may look to more protectionism as the region faces economic challenges.
“Indonesia is a country designed to be a free-trader actually…we just cannot police all these long shorelines,” he said.
“We are in favour of more open trade and economic relations among countries, and there has been some discussion in this time of crisis – what do you do on top of this?
“But I think this is just people talking – it happens in any country, not just Indonesia.”
Topics:
budget,
trade,
oil-and-gas,
indonesia,
asia
Source Article from http://www.abc.net.au/news/2013-06-14/an-indonesian-vice-president-says-action-needed-on-fuel-subsidy/4753292
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