Indonesian Parliament gives government green light to boost subsidized fuel prices

Indonesia’s parliament has given the government the authority to raise the prices of subsidized fuel under specific conditions. Analysts say the move could boost inflation and spur protests in the country. The government of Southeast Asia’s largest economy was given the authority to raise fuel prices if the price fluctuates an average of 15 % for six months from the current Indonesia Crude Price (ICP) forecast of US$105 per barrel. The country has the lowest fuel prices in Asia and the government of President Susilo Bambang Yudhoyono had been advocating a 33% increase starting April 1 to reduce fuel subsidy costs. But after the voting in Parliament, Sutan Bhatoegana of the Democrat Party said, “The hike will be pending based on the global oil price. There won’t be a rise on April 1 and that could mean there will not be a rise this year.” Like other major oil producers, Indonesia has been subsidizing pump prices, but with a declining crude output and old refineries, the country now relies on costly motor fuel imports. Subsidies have been keeping pump prices at half the market rate, and this has spurred fuel demand and has helped boost car sales to record highs. But economists say that for the country’s long-term financial health, consumers have to be weaned from subsidies. (March 30, 2012)