Indonesian Government Wants to Increase Fuel Subsidy Spending in 2013
Although Indonesia’s government stresses the need to relieve pressure on the state budget (by raising the price of subsidized fuel next month), it plans to allocate an additional IDR 16.1 trillion (USD $1.65 billion) to this year’s fuel subsidy budget. The additional allocation, which covers fuel, LPG and vegetable fuels, will raise government expenditure on fuel subsidies to IDR 209.9 trillion (USD $21.50 billion) from the IDR 193.8 trillion drafted in the original 2013 state budget (APBN 2013). Total energy subsidies will grow to IDR 309.9 trillion this year.
Newly installed Finance minister, Chatib Basri, stated that the increase in the country’s fuel subsidies spending cannot be averted as a number of macroeconomic assumptions have not been in line with results such as the value of the IDR rupiah, the oil lifting target, and Indonesia’s crude oil price. The deviation between a number of these assumptions and realized outcome has resulted in ballooning government expenditure on fuel subsidies as a large quantity of oil is imported, while domestic demand for fuel has increased significantly due to Indonesia's rapidly expanding economy.
“The price of Indonesia’s crude oil has surpassed the level that was mentioned in the original state budget.“ Chatib said on Wednesday (22/05/13).
Chatib also stated that fuel subsidies expenditure can balloon to IDR 297.7 trillion in 2013 if the price of subsidized fuel is not raised, particularly because in the original 2013 state budget the value of the rupiah was set at IDR 9,300, while in reality it has fallen to IDR 9,600 to the US dollar. Indonesia’s crude oil price - originally set at USD $100 per barrel - has surpassed the USD $108 per barrel mark and the government's oil lifting target will, most likely, not be met due to unproductive oilfields. Oil lifting in the period December 2012 to March 2013 only reached 826,000 barrels per day (bpd). Chatib expects the number to reach 840,000 bpd for full 2013.
The increase in the price of subsidized fuel still awaits approval from the president. Chatib said that the president will probably not decide before talks regarding the revised 2013 budget (with the Budget Committee of the House of Representatives) are over (after 17 June 2013).
In order to reduce the (inflationary) impact of higher fuel prices on poorer segments of society, the government prepares a number of compensation programs. In the revised 2013 state budget, it requests for an additional IDR 30.1 trillion (USD $3.08 billion) for poverty eradication as well as infrastructure development. The programs include direct cash transfer programs (Bantuan Langsung Sementara Masyarakat) amounting to IDR 11.6 trillion, development of basic infrastructure amounting to IDR 6 trillion, and scholarships for the poor amounting to IDR 4.5 trillion.
In the revised 2013 state budget, inflation is proposed at 7.2 percent, significantly higher than the initial target of 4.9 percent.
Minister of National Development Planning and head of Bappenas, Armida Alisjahbana, announced that the government will prepare social programs labeled P4S (paket program percepatan dan perluasan social). These programs aim at the poorer segments of Indonesia's society.
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