Indonesia to Hike Oil Prices to Secure State Budget

Indonesia decided to hike the prices of subsidized-oil on Monday in a bid to secure the state budget from a pressure of mounting subsidies following the soaring global oil prices, the country' s Coordinating Minister for Economy Boediono said.

The minister told a joint press conference after a cabinet meeting led by President Susilo Bambang Yudhoyono that to reduce the social impact of the policy, the government would provide incentives for the low income group.

However, Boediono declined to elaborate on how much the rises would be.

Indonesia has increased subsidies on oil sector from 45.8 trillion rupiah (some 5.33 billion U.S. dollars) to 126.8 trillion rupiah (about U.S. 13.85 billion U.S. dollars) due to the skyrocketing oil prices.

"Based on the current global situation, the government needs to raise prices of subsidized-oil gradually to secure our state budget in 2008 and in 2009," he said.

The minister said that the government was now preparing and discussing the amount of the hikes and the type of oil whose prices would be increased.

"Within weeks they will be announced to the public," said Boediono.

Besides, the minister said that the government had already taken and would carry out some energy-saving measures to reduce subsidies on energy.

The steps included the limitation of the opening hours of shopping malls, the conversion of the use of expensive energy to that of cheaper one; shifting the use of kerosene to gas, and the shifting of the target of subsidized premium from the middle and high income group to the low-income group.

Indonesia hiked fuel prices in October 2005 following a policy of providing incentive of 100,000 rupiah (about 10.98 U.S. dollars) per month to the low income group. The policy then resulted in a high inflation.

The Indonesian chamber of commerce and other business group have pressured the government to life the oil price.

The chamber has predicted the subsidies on oil sector could pass 200 trillion rupiah (some 21.98 billion U.S. dollars), should the global oil price reach 120 billion U.S. dollars per barrel.

Indonesia has attempted to boost crude oil output as it has failed to find new oilfields fast enough.

The country's aging oil wells and lack of investment in the energy sector have pushed Indonesia to become a net crude oil importer, although it is still a net energy exporter, thanks to a large amount of supply of natural gas and coal.