Jakarta, Sept 20 (Antara) - Bank Indonesia (BI) has called on the next
government to increase subsidized fuel prices before the US Federal
Reserves raises its fund rate to prevent capital from flowing out of the
country.
"It would be better if prices are raised in the fourth quarter. But the
increase must not go beyond February 2015," BI Senior Deputy Governor
Mirza Adityaswara said.
The deputy governor of BI, the central bank, said a price increase of
subsidized fuels would reduce the risk of capital flight overseas, as it
cuts the country's deficit.
"Indonesia is facing the risk of capital outflow by foreign investors.
The government should prevent this by improving the condition of its
deficit. In the short-term, this could be done by cutting fuel
subsidies," said Mirza Adityaswara in Jakarta on Friday, Sept. 19.
He added that Indonesia still relies on foreign capital flow, so it
should prevent capital outflow that could trigger turmoil in the
financial markets. The faster fuel prices are raised, the better it
will be, he said.
Further,
an increase in fuel prices will demonstrate the strong intention on the
part of the new government to make structural reforms earlier than
expected, he noted.
Raising
fuel prices is a proper alternative to address the budget deficit and
the current account deficit. If the policy to raise fuel prices is put
on hold, the impact of fuel price hikes on the inflation rate will be
delayed accordingly, prompting BI to continue its tight monetary policy,
he said.
"If the prices of fuels are raised now, the inflation rate will fall more quickly," he added.
Moreover, according to Mirza Adityawara, the plan from The Fed to raise
its interest rate poses a challenge to Indonesia on how to prevent
foreign investors from taking their capital out of the country.
Mirza cited an example from the crisis in 2013 when Indonesia was hit
by financial turmoil. This triggered major capital outflows and drove
down the rupiah exchange rate from Rp9,000 to Rp11,000 against the US
dollar. The country's foreign exchange also dropped, from US$120 billion
to US$90 billion.
Meanwhile, publicly listed PT Bank Permata economist Joshua Pardede
also predicted that the increase in the interest rate by The Fed would
trigger capital outflows from Indonesia.
"The focus of the financial market at home is the development of the
United State economy. The US economy now is in the recovery stage. This
is evidence of growth for the United States to increase interest rates,"
noted Joshua Pardede recently.
He added that the indicators for The Fed to raise its rate included the
US inflation of two percent and economic growth of four percent.
"The US inflation has touched that rate. Its economy is recovering, as
reflected in the development of its housing, workers and the downward
trend of unemployment," Joshua said.
This ouflow could cause the rupiah currency in the stock market to face turmoil.
He predicted that in order to suppress foreign fund outflows and
turmoil in the domestic financial markets, Bank Indonesia will likely
raise its key rate by 50 basis points to 8.0 percent in 2015.
"The BI rate is now set at 7.5 percent. This level is believed to stay
until the end of the year. Next year, BI will have an option to increase
this by five basis points to 8.0 percent to hold back capital outflows,
which are triggered by The Fed rate hike," the Bank Permata economist
said.
Besides that, according to BI Senior Deputy Governor Mirza Adityaswara,
a reform in the energy sector is needed to face the likelihood of
foreign capital flowing out of Indonesia. The price of fuel oil in the
country should be set at an economic viability rate equal to
international fuel prices.
If this is done, Mirza said, the government can hope that Indonesia,
which is carrying out energy reforms, will be able to boost its economic
growth to higher levels.
The BI deputy governor compares prices in the Philippines, where fuel
is sold based on the international economic viability rate. "In the
Philippines, the ratio of economic growth is healthier than in
Indonesia. We should be ashamed of it. The Philippines can manage its
fuel better. So, the subsidy concept should be carried out in real
terms, where its distribution will not miss its real target," added
Mirza.
Therefore, Mirza hoped that subsidized fuel prices would be raised
directly to fuel economic viability levels, rather than gradually at a
low level.
The price of subsidized premium gasoline, for example, which is now
set at Rp6,500 per liter, should be raised directly to its economic
viability of about Rp11,000 per liter.
"If fuel prices are raised by Rp1,000 per liter, the nation will
continue to record an inflation rate, yet it can overcome the budget
deficit for the budget year 2015 and the current account deficit in 2015
will become smaller," he said.
Mirza said he was convinced that the current account deficit will be
more positive if prices of subsidized fuels are raised and oil imports,
which have burdened the state budget, can be reduced.
He noted that if prices of subsidized fuels are raised by Rp3,000 per
liter, the inflation rate will increase by 2.5 to 3 percent.
In
the meantime, President-elect Joko Widodo promised in Karanganyar,
Central Java last week, that he will go ahead with the plan to raise
fuel oil prices. He said he was prepared to become unpopular due to his
plan.
Joko
Widodo said fuel subsidies that had been provided by the government had
burdened the state budget. "We (the consumers) have enjoyed the subsidy
for too long. And it is dangerous if the government continues to
provide us with it from time to time," Joko Widodo.
He said that the fuel subsidy is a serious challenge to be faced,
because it is too large, as some 71 percent of the subsidy is enjoyed by
people who owned private cars. "The fuel subsidy will be cut and be
given to fishermen, farmers, irrigation development, health services and
infrastructure facilities," he added.***2***
(T.A014/INE/o001)
(T.A014/A/BESSR/O. Tamindael) 20-09-2014 14:1 |
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