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Govt advised to raise fuel prices in June 2008

4/26/08 00:43
Jakarta (ANTARA News) - The government must make a decision on fuel price hike as early as June 2008 in reaction to the surging global oil prices, an economist said.

"Whether we like it or not there must be a government decision on fuel price hike next June or the government has the guts to ensure that oil subsidy will remain low," Aviliani of the Indef economic research institute said in a joint press conference with Director General of Oil and Gas Lulu Sumiarso at the Information and Communications Ministry here on Friday.

Although the decision was not popular, it would have a positive impact on the sustainable growth of the Indonesian economy, he said.

If fuel prices were not raised, fuel subsidy would put a heavy burden on the government and would in turn impede the growth of the development sector, he said.

"There will be no activities in the infrastructure sector. There will be no adequate fund to implement a poverty alleviation program," he said.

In addition, investors who had bought or would buy state bonds (SUN) and state retail bonds (ORI) might lose confidence in the government`s capability to repay maturing SUN and ORI, he said.

"If the investors dispose of (SUN and ORI), we may face a liqiudity crisis," he said.

Should the government raise fuel prices, the increase might range from 20 percent to 30 percent, he said.

"The range of 20 percent to 30 percent is the maximum level," he said.

While admitting that the increase in fuel prices would face public resistence, the government should go ahead with the move to make the public to have a sense of crisis, he said.

He said the government could only save Rp6 trillion in fuel subsidy from its "smart card" program but the figure was not significant to address the present fuel oil problem.

Oil observer Kurtubi shared Aviliani`s views saying he agreed to any plan to raise fuel prices to reduce oil subsidy.

If the fuel prices were not raised, the amount of oil subsidy would be enormous due to the surging global crude prices, he said.