WORRIES ARISING OVER IMPACT OF GOVT PLAN TO RAISE FUEL PRICES

By Andi Abdussalam

     Jakarta, May 7 (ANTARA) - The government's policy to increase fuel oil prices in the near future will adversely affect different sectors of the people's life, raising the unemployment and inflation rates as well as slowing down the country's economic growth and gross domestic product, various quarters here cautioned on Wednesday.
     "Almost all economic activities such as agriculture, trade and industry are depending  on fuel oil," Sahmin Arasyid, member of the  Bangka Belitung Legislative Assembly (DPRD) said.
     According to the legislative councillor, the government must therefore be very cautious in deciding to raise fuel oil prices because it is a serious issue. Raising fuel oil prices  to solve  economic problems could be counter-productive. It could cause economic problems, instead of solving the people's problems.
     The government has decided to raise domestic fuel oil prices amid the upward trend of global crude prices, which burdens the state budget.
     Crude prices in the world market are now hovering at US$120 a barrel and are expected to push up fuel subsidy to more than Rp125 trillion.
     It was previously reported that the finance ministry was considering a plan to raise subsidized fuel oil prices by 28.7 percent starting in June.
     Based on the scheme, the price of premium gasoline would be raised from Rp4,500 to Rp6,000 per liter, diesel oil from Rp4,300 to Rp5,500 per liter and kerosene from Rp2,000 to Rp2,300 per liter.
     Sahmin Arasyid said increase in fuel oil prices would push up essential commodity prices. "Commodity prices will go up as transportation and production costs will also increase," he said.
     At present basic necessary prices have been skyrocketing. It will be worsened by a fuel price increase. "Raising fuel oil prices would not be able to suppress rocketing  commodity prices, and this will harm the interest of  poor people," Arasyid said.
     People in the lower bracket like fishermen will surely feel the direct impact. Therefore, thousands of fishermen in Cilacap district, Central Java, have expressed their concern. They said it was them who would  feel the pinch of fuel price hike.
     "In Cilacap, thousands of fishermen, who are now already facing difficulties, will surely bear the brunt of fuel oil price hikes," Chairman of Cilacap's branch of the Indonesian Fishermen Association (HNSI), Indon Cahyono, said.
     He said that if the government carried out its plan to raise subsidized fuel oil prices it would seriously affect fishermen, now already felt the impact of previous increases in diesel oil prices. In 2005, the price of diesel oil was raised from Rp2,100 per liter to Rp4,300 per liter
     Since then, fishermen have been forced to mix diesel oil with kerosene to run their fishing boats. "If fuel oil prices increased, thousands of fishermen would lose their job as they would not be able to buy fuel oil," Cahyono said.
     Fishermen in North Sulawesi also faced the same difficulties.  Marietha Kuntag, a  North Sulawesi provincial administration official dealing with  economic affairs, said a fuel oil price  hike would push up the prices of basic necessaries as well as  transportation costs and affect the fishermen's activities.
     "Fishermen in North Sulawesi in general mainly depend on subsidized fuel oil in their fishing operations. So that an increase in fuel oil prices will undoubtedly affect them," he added.
     Concerns were raised not only by those who work in the informal sector but also civil servants. A number of civil servants in Lampung province, Sumatra said an oil price increase would increase the cost of their daily necessaries and reduce their purchasing power.
     "Civil servants' salaries were raised by about 15 to 20 percent only but oil prices will be raised by about 30 percent. How could we adjust our income to increasing commodity prices," said Warsan, a civil servant, in Bandar Lampung.
     According to a simulation conducted by a research institute, an increase of fuel oil prices will affect the country's inflation, employment, domestic products and poverty as well as economic growth.
     "A simulation using a 'time-series' model has shown that a 30-percent increase in the prices of  various fuel oils  such as kerosene, diesel oil and premium gasoline  will cause the unemployment rate to grow by about 16.92 percent a year,"  said Pri Agung Rakhmanto, executive director of Reforminer Institute, an energy and mining reform research institute, said
     He said an increase of just 10 percent in fuel oil prices will result in an inflation rate of more than eight percent and an unemployment rate of 5.6 percent. The impact will obviously be much worse if the fuel oil price increase is 30 percent.  Unemployment may swell 24 times its present figure.
     Rakhmanto said that the simulation also showed that an increase of 30 percent in fuel oil prices would lead to an annual growth of 8.55 percent in the poverty rate.
     When the simulation was done using the consumer price index model, it was found  that an increase of 30 percent in fuel oil prices would  lead to a growth of 26.94 percent per year in the inflation rate.
     According to a simulation using the Gross Domestic Product (GDP) model, Rakhamanto said,  a 30-percent fuel oil price hike would also reduce the country's GDP to about -4.11 percent.
     "In short, an increase by 30 percent in the fuel oil prices will boost the inflation rate, slow down  economic growth, increase the unemployment and  poverty rates," he said.
      Therefore, House of Representatives Speaker Agung Laksono called on the government not to use the option of raising fuel oil prices to  resolve the increasing subsidy problem.  "The people are now already facing economic difficulties," he said.
     The government could use other options, for example, approaching world lending institutions such as the World Bank or asking the IMF to reschedule its debts, Agung added.
(T.A014/A/HNG/A/E002) - May 7, 2008