Indonesian Parliament Approves Conditional Fuel-Price Rise

Indonesia Girds for Protests as Yudhoyono Seeks Fuel-Price Rise
A customer waits as an attendant refuels his motorcycle at a PT Pertamina gas station in Jakarta. Photographer: Dimas Ardian/Bloomberg

Indonesia’s parliament gave the government conditional authority to raise fuel prices, after President Susilo Bambang Yudhoyono’s Democrat Party dropped its push for an April 1 increase.

Lawmakers voted 356 to 82 in favor of a proposal by the Democrats to allow an increase if the Indonesia Crude Price, or ICP, exceeds the budget assumption of $105 a barrel by 15 percent over a six-month period, Speaker of the House Marzuki Alie said after the 14 ½-hour session ended at about 1:30 a.m. Two opposition parties walked out on the proceedings.

The deliberations took place as about 12,000 demonstrators clashed with police in front of the parliament building last night, and a police-estimated 81,000 rallied across the country in the biggest public protests since the government raised fuel prices in 2008.

Soaring food and fuel costs in the world’s fourth-most- populous nation contributed to riots that led to the ousting in 1998 of the dictator Suharto, then Asia’s longest-reigning ruler. This week’s protests underline the balancing act Yudhoyono must undertake as he seeks to curb a subsidy bill that threatens to sap funds from health, education and transport programs needed for boosting investment and growth.

About 200 people rallied in front of the presidential palace and there’s no sign any larger protests will take place in Jakarta today, Rikwanto, a spokesman for the Jakarta police, said in a mobile-phone text message.

Earlier Proposal

Yudhoyono’s administration had proposed to increase the price of subsidized gasoline and diesel by 33 percent to 6,000 rupiah (65 U.S. cents) per liter effective April 1. Finance Minister Agus Martowardojo said the government agreed with today’s vote, adding that parliament’s approval is strategic to fiscal sustainability in the long run.

The government may not raise the fuel price in the “near term” as crude hasn’t exceeded the threshold allowed by parliament, said Bambang Brodjonegoro, head of fiscal policy at the finance ministry. Yudhoyono will hold a meeting with his cabinet tonight to discuss parliament’s decision, Julian Aldrin Pasha, a presidential spokesman, said in a mobile-phone text message.

The six-month average of the ICP was $113.7 a barrel, or 8 percent above the assumption, as of Feb. 29, according to Bloomberg calculations based on data from the Energy and Mineral Resources Ministry.

‘Bad Impact’

Parliament also approved the 2012 economic growth assumption of 6.5 percent, inflation target of 6.8 percent, exchange rate of 9,000 rupiah per U.S. dollar and crude oil sales at 930,000 barrels per day, Martowardojo said.

Maintaining subsidies “would have a really bad impact” on growth by causing the fiscal deficit to exceed the legal limit of 3 percent of gross domestic product, forcing cuts in more productive spending, National Economic Committee Vice Chairman M. Chatib Basri said in an interview with Bloomberg Television in Hong Kong on March 23.

Yudhoyono said in a press conference tonight the government may cut spending in order to keep the budget within the limit.

Yudhoyono, re-elected in 2009 for a second five-year term, has pledged to increase spending on roads, seaports and airports to help deliver growth of at least 6.6 percent by the end of 2014. Yesterday’s protests would be the biggest since 2008, when Indonesia last raised fuel prices, according to Dodi Ambardi, a political analyst at Yogyakarta-based Gadjah Mada University, and Nico Harjanto, a public policy analyst at the Jakarta-based Rajawali Foundation.

Under Pressure

Indonesia is under pressure to show progress in containing its budget deficit, as it seeks a credit rating boost from Standard & Poor’s to complete its return to investment grade after losing the status in the 1997-98 Asian financial crisis. Officials from S&P visited the country this week after raising the nation’s bonds to BB+ a year ago.

“I’m hopeful that S&P will raise Indonesia’s rating within this year, which will bring in foreign investors again,” Ezra Nazula, Jakarta-based head of fixed income who helps manage 24 trillion rupiah at PT Manulife Asset Management, said in a March 20 interview. “It will be a plus point for Indonesia if the government can show that they are willing to increase the fuel prices and reduce the subsidies’ burden on the budget.”

Indonesia’s state oil company PT Pertamina sells subsidized petrol at retail stations for 4,500 rupiah a liter (about $1.85 a gallon). Non-subsidized high-octane gasoline costs as much as 10,000 rupiah a liter ($4.13 a gallon).

Gasoline in India, which is not subsidized, costs 65.64 rupees ($1.28) a liter ($4.84 a gallon) in New Delhi. Diesel, which is subsidized, is sold at 40.91 rupees a liter ($3.03 a gallon), according to Indian Oil Corp.’s website.

Regular gasoline at U.S. pumps, averaged nationwide, cost $3.921 on March 28, according to AAA, the nation’s biggest motoring club. Diesel cost $4.147 a gallon as of March 26, according to the U.S. Department of Energy.

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