THE REPUBLIC OF INDONESIA
Jalan Lapangan Banteng Timur Nomor 2-4 Jakarta 10710
GOVERNMENT EXPLANATION
ON
GOVERNMENT OF INDONESIA DECREE
REGARDING
THE REDUCTION OF FUEL SUBSIDY
AND OTHER RELATED POLICIES
Jakarta, May 23, 2008
The global price of crude oil has been increasing during the past year. Last year the global price of oil is at USD 80/barrel, currently this price is above USD 130/barrel. This has caused an increase in the amount of fuel subsidy to an extent that it is no longer sustainable. Given that the price of crude oil is at USD 120/barel for 2008, the fuel subsidy will exceed Rp 200 billion, while according to UU No 16/2008 regarding the 2008 national budget which have been approved by the house of representatives, the maximum budget allocated for fuel subsidy is only Rp 135,1 billion.
With the increasing fuel subsidy, the government’s ability to fund programs which are oriented to the improvement of lives for the poor is dramatically reduced. These programs include education, health facilities, National Program for Community Empowerment, small business credit facilities, and the development of infrastructure.
On the other hand, the fuel subsidy is mainly consumed by those who are not targeted by the program. As much as 40 percent of high income families benefit from 70 percent of the subsidy, while 40 percent of the lowest income families only benefit only 15 percent.
Increase of Fuel Price as the Final Alternative
The government have attempted to manage and minimize the effect of rising global oil price towards the community. Steps such as reducing government spending, increase of tax income, efficiency of PLN and Pertamina, conversion and economic spending of subsidized fuel will continue to be taken.
Despite all of these efforts, they are not enough to control the effect of rising global oil prices, therefore the government have been forced to implement the option of fuel price increase.
The price of fuel in Indonesia is currently one of the lowest in the Asian region (lower than East Timor, Cambodia, and Bangladesh as lower income countries). After the 28,7 % increase, our fuel prices is still far lower than those of East Timor, Phillipines, Thailand, and Singapore.
Compensation Program
The government is fully aware that the increasing fuel price will also affect living costs and increase the burden of the public. With this in mind, the government have prepared programs to reduce the burden of low income societies before implementing new fuel price. These programs include direct cash assistance (Bantuan Langsung Tunai), towards 19,1 million families, for a total amount of Rp 14,1 billion for the 2008 fiscal year.
Alongside this program, the government has set other compensation programs, which include:
- Food Sustainability Program:
- Low Priced Rice (Raskin) is kept at Rp 1600/kg, which was planned for Rp 1900/kg.
- Time period of Low Priced Rice distribution towards 19,1 million households has been extended from 10 months to 12 months.
- Fund support for children’s education of government employees category I/II, Tamtama TNI/Polri.
- Subsidy increase for low scale credit facilities.
After careful consideration and preparation of BLT distribution, the government through The Minister of Energy and Mineral Resources Regulation No.16/2008, have increased the price of subsidized premium fuel, diesel, and kerosene, effective as of May 24 2008, 00.00 WIB (refer to attachment).
Besides, the government will also continue to implement the economic use of subsidized fuel through the control card program. This program was launched in Semarang, Central Java, and the smart card program will be put to trial this September.
All of these policies are aimed to strengthen and stimulate the national economy, while also improve the social fairness for all citizens of the Republic of Indonesia.
ATTACHMENT:
CHANGE OF FUEL PRICE
| No | Commodity | Previous price (Rp/liter) | New Price (Rp/liter) |
1 | Premium fuel | 4500 | 6000 |
| 2 | Diesel fuel | 4300 | 5500 |
| 3 | Kerosene | 2000 | 2500 |
2008 Fuel Subsidy Reduction Compensation Program
| No | Program Type | Budget (Rp Billion) | Implementation Shedule |
| 1 | Direct cash assistance (BLT) | 14,1 | Jun-Des |
| 2 | Food sustainability program and low priced rice | 4,2 | Jun-Des |
| 3 | Subsidy increase for low scale credit facilities | 1,0 | Jun-Des |
