Confronted by increasing domestic demand for fuel, current fuel prices of US$50 a barrel, and long-standing subsidies costing the Indonesian economy a crippling US$7.9 billion a year – the Government of President Susilo Bambang Yudhoyono took the long anticipated step on Tuesday, March 1, 2005, and increased fuel costs from between 22 to 47 percent, depending on the fuel commodity.
Drivers immediately felt the pinch at the gas pump where premium gas jumped 32% to Rp. 2,400 a liter (approximately US$0.26) and diesel fuel for transportation up 27.3% to Rp. 2,100 a liter (approximately US$0.23).
Diesel used for industrial applications increased 33.3% to Rp. 2,200 a liter (approximately US$0.24).
Kerosene for industrial applications was hiked 22.22% - now pegged at Rp. 2200 per liter with fuel oil experiencing the biggest hike of 47.44% - now costing Rp. 2,300 per liter (approximately US$0.25).
The price of kerosene – a staple fuel in low income households in Indonesia – was exempted from any price increase remaining at Rp. 700 per liter (approximately US$0.08).
With fuel subsidies costing the government an estimated US$22 million every day, the ever-increasing cost of crude oil on world markets were proving an unbearable burden on the Indonesia budget. Economic analysts also pointed out that the subsidy system was rife with corruption and mismanagement causing the Government further losses.
The latest increase has reduced the cost of fuel subsidies borne by the Government to Rp. 110 billion per day (approximately US$12 million).
The substantial savings have been pledged by President Susilo Bambang Yudhoyono to be used on long-neglected social welfare programs, including scholarships, rice subsidies for the hungry, and free medical services for the poor.
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