by Abu Hanifah
JAKARTA, Jan. 24 (Xinhua) -- The Indonesian government has opted to limit the consumption of subsidized fuel instead of hiking the price of fuel to reduce the subsidy burden in the state budget.
The limitation of subsidized fuel consumption, which is contained Regulation No. 1/2013 recently issued by the Energy and Mineral Resources Ministry, is a modified version of the one issued last year.
The regulation contains wider range of vehicles, mostly operated by government offices and state-run firms, to be banned from enjoying subsidized fuel.
The ban in using subsidized fuel, that would take effect in different periods from February to July this year, also applies to non-passenger ships.
With the implementation of the regulation, the government expects to save some 1.3 million kiloliters of subsidized fuel throughout this year, which is equivalent to saving some 6.5 trillion rupiah (about 675.3 million U.S. dollars) in fuel subsidy fund.
The government has allocated 46 million kiloliters of subsidized fuel this year valued at 193.8 trillion rupiah (about 20.1 billion U.S. dollars).
The efficacy of this new regulation is doubted as the regulation issued last year resulted in little savings of subsidized fuels at 350,000 kiloliters. Given the fact that price of subsidized fuel is half of the price of non-subsidized one, abuses on the fuel consumption have been rampant.
Smuggling the fuel for foreign markets that offer higher prices perpetrated by unscrupulous businessmen was also rampant. The massive consumption of the fuel by private cars, which are not entitled to subsidized fuel, has also compounded the problem.
Due to the massive consumption of fuel, the government had to add subsidized fuel quota by 1.2 million kiloliters late last year from 44 million kiloliters initially set for last year.
The government originally provided subsidized fuel for fishing boats, motorbikes and public transport vehicles.
"I think it is still far from effective to reduce the subsidy burden," the head of fiscal policy board at the financial ministry, Bambang Brodjonegoro, said on Wednesday as quoted by the Antara news service.
The plan of the Indonesian government to hike the subsidized fuel was widely opposed by people and students who staged massive protests across the country in April last year.
The plan was intended to reduce the subsidy allocation and shifting the use of the funds to finance projects addressing public welfare, such as health facilities for the people.
International agencies have warned that heavy allocation on fuel subsidy might hinder government's efforts to attain higher growth in the future.
The largest economy Southeast Asia region recorded a 6.5 percent growth last year and is aiming to attain 6.8 to 7.2 percent growth this year.
Some economists have said that the massive allocation on subsidized fuel by the government might hurt further the country's foreign trade deficit.
Indonesia saw a record-breaking foreign trade deficit of 20 billion U.S. dollars last year, the highest in the last 50 years.
Senior Economist at Standard Chartered Bank Indonesia Fauzi Ihsan said that excessive import of fuel for subsidized fuel contributed to the huge deficit.
He said that the increasing consumption of subsidized fuel in the country has forced government to allocate more funds to finance oil imports from foreign countries and allocate more subsidy fund in the budget at the same.
"Had the government and the parliament approved to increase the subsidized fuel price in April last year, the deficit would not reach as big as that figure," Fauzi said in an interview with Xinhua earlier this month.
He said that the government actually has the flexibility in doing so anytime as it has strong legal basis with the enactment of state budget law last year. He added that the law does not particularly explain the technical requirements to increase the price of subsidized fuel price.
Increasing the subsidized fuel price is the most effective way to reduce the foreign trade deficit, according to Fauzi.