Tuesday, 24 April, 2012 | 12:15 WIB
Subsidy for Fuels To Rise Despite Restricted Consumption
TEMPO Interactive, Jakarta:Restricting consumption of subsidized fuels will not necessarily solve the rise in fuel subsidy costs as the subsidy budget would still increase from Rp. 137,4 trillion to around Rp. 239 trillion.
“Restricting consumption does not save subsidies significantly,” said Executive Director of Economic and Monetary Policy Research of Bank Indonesia, Perry Wariyo, on Monday.
Perry explained that private vehicles in Java and Bali consumed around 8,9 million kms subsidized fuels annually. If the government goes ahead with restricting subsidized fuels to vehicles with engine capacity above 1,500 cc, it could save around 40 percent. “However saving depends on when the policy will be initiated,” he said.
Perry elaborated that if the restriction comes in effect as per May, the saved fuel consumption will be equal to 8 months' consumption or around 2,4 million Km.
Assuming the Indonesian Crude Oil price (ICP) at US$120 per barrel and economic price of Rp. 9,000 (subsidized at Rp. 4,500 per liter), it is expected that Rp. 10,8 trillion will be saved.
He also calculated that if the restriction is enforced, inflation will increase from 0,3 percent 4,7 percent. If the restriction is applied together with the subsidized fuel price hike of Rp. 1,500 per liter, it is estimated that the inflation is estimated to increase further by 2,2 percent to 6,9 percent. Bank Indonesia has its own measures to respond to the said inflation. Perry said that one of the measures is to control the currency market. If this measure is not sufficient, inflation will be controlled through minimum current account regulation. “The increase has to be proportional to liquidation assets,” he said.