Govt to raise subsidies by 23% to Rp 199.34 trillion

Total subsidies will be raised by 26.3 percent to Rp 199.34 trillion (US$21.73 billion) in the revised 2010 state budget to protect households, the main driver of Indonesia’s economy, the Finance Ministry said.

In the 2010 budget it is estimated total subsidies will reach Rp 157.82 trillion. But they need to be revised in line with a predicted surge in global oil prices, bringing the Indonesia Crude Price (ICP) to $77 per barrel in the revised 2010 budget up from $65 earlier, the ministry said.

Last year total subsidies were set at Rp 157.73 trillion, based on an ICP of $61 per barrel.
Finance Minister Sri Mulyani Indrawati told the foreign media Tuesday night the government would maintain the purchasing power of households to achieve the targeted 5.5 percent economic growth.

“The economy is sustained by household consumption and investment recovery,” she said. Last year the economy grew by 4.5 percent, mainly driven by household consumption, the Central Statistics Agency (BPS) said.

In the revised 2010 budget, the fuel subsidy is to soar by 30 percent to Rp 89.29 trillion, almost double the fuel subsidy of Rp 45.04 trillion in 2009, the Finance Ministry said.

This year’s inflation is estimated to reach 5.7 percent, according to the revised 2010 budget. Inflation may increase in the second half of this year after the government raises the electricity tariff, analysts predict.

Mulyani said the government would raise the electricity tariff in the second half of the year, instead of in January as planned.

The electricity subsidy in the revised 2010 budget rises 44.2 percent to Rp 54.5 trillion because of the crude oil price increase and delayed electricity tariff increase, as well as a carryover of Rp 4 trillion from a delayed 2009 electricity subsidy payment and the increased margin allowed to state power utility PLN up from 5 to 8 percent.

The tariff increase will apply to households and businesses with capacity of above 6,600 VA who use electricity at a rate of more than 50 percent of last year’s average consumption for their category. The fertilizer subsidy is also raised by 30 percent to Rp 19.18 trillion. The plan to raise fertilizer prices has been delayed until April from January.