Indonesia Parliament agrees to curb fuel subsidies

Wednesday, 15 December 2010 00:01 - - {{hitsCtrl.values.hits}}

JAKARTA (AFP) - Indonesia's parliament on Tuesday approved a bill to stop private cars using subsidised fuels early next year, a move that will cut public spending but increase pressure on inflation.

The policy, which will be implemented from March next year starting in the capital Jakarta, has been pushed by the International Monetary Fund and the World Bank as a means of unlocking funds for infrastructure development.

“There are many people who are well-off but still benefit from fuel subsidies. This is unfair and off target,” said United Development Party lawmaker Romahurmuziy, who is on parliament's energy commission.

“The richest 25 percent of the people here consume 77 percent of fuel subsidies. Subsidies should be geared toward those who are not well-off.”Private car owners will have to pay market prices of around 5,600 rupiah (62 cents) for a litre of higher-grade fuel, instead of 4,500 rupiah at the subsidised price.

Subsidised fuel will be available only for public transport and motorcycles, the ride of choice for scores of millions of Indonesians.

The new rules for private cars will be applied to the rest of Java and Bali islands in the second half of 2011, and the rest of the country by 2013.

The government said the scheme could boost inflation in the Jakarta area by as much as 0.15 percentage points, but some analysts believe the overall impact on nationwide inflation could be as high as 0.6 percent next year.

Inflation accelerated in November, with the consumer price index up 6.33 percent on year, from 5.67 percent in October.