Indonesia's 2014 budget assumes 45 pct hike in subsidised petrol price

JAKARTA (REUTERS) - Indonesia's government is assuming there will be a 45 per cent rise in the price of subsidised petrol, a move widely seen as essential to relieve mounting pressure on the state finances.

The government has been agonising for months over how and when to hike prices of heavily subsidised fuel, which consume an increasingly large portion of the annual state budget and add to the current account deficit.

The 2014 budget proposals to parliament assume the price of low octane petrol will rise 2,000 rupiah (S$0.26) to 6,500 a litre. Diesel would be 1,000 rupiah higher at 5,500 a litre.

Mr Bambang Brodjonegoro, head of the Finance Ministry's fiscal office, confirmed the amounts by which the government intends to raise those prices. The increases "will come into effect after the discussion for state budget revision is completed," he said.

President Susilo Bambang Yudhoyono, who has repeatedly delayed a decision on the issue, recently said any price increases would be dependent on parliament approving financial measures to protect the poor from the impact of more expensive fuel.

The issue will be one of the biggest challenges facing the new finance ministry when he is eventually appointed. Dr Yudhoyono abruptly shifted the previous minister Agus Martowardojo to head the central bank but has yet to name a successor.

Even though subsidised fuel prices are eating up budget funds that are desperately needed elsewhere in the economy, Dr Yudhoyono has appeared to be concerned over the inflationary impact ahead of general and presidential elections next year.

Earlier this month, he essentially passed the problem to parliament, saying he would not agree to fuel price increases unless MPs approved measures to protect the poor.

That issue is likely to be the centre of parliamentary debate in the current session.

The proposed budget for 2014 also sees gross domestic product growth rising to 6.4-6.9 per cent, above the Finance Ministry's latest forecast for this year of 6.2 per cent.

It put the 2014 budget deficit at 1.7-2.3 per cent of GDP. Last month, the Finance Ministry predicted this year's budget deficit would widen to 2.0-2.4 per cent from an original estimate of 1.65 per cent of GDP.

The proposed 2014 budget also put the rupiah at 9,600-9,800 to the dollar, which compares with the current level around 9,700. Crude oil output was projected at 900,000 to 930,000 barrels per day. Most recent official figures show actual crude lifting in March was 840,000 bpd.