Indonesia should ban all private cars from using subsidized fuel: adviser

Fri Mar 29, 2013 12:03am EDT
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By Randy Fabi and Janeman Latul

TANJUNG BENOA, Indonesia (Reuters) - Indonesia should slap a nationwide ban on the use of subsidized fuel by the country's 11 million private cars, a move that would save the government $8.6 billion this year and erase a widening fiscal deficit, a presidential adviser said.

President Susilo Bambang Yudhoyono is struggling to find a way to deal with runaway fuel subsidy costs that now account for more than 30 percent of state spending and are draining funds that should be used for much-need infrastructure in Southeast Asia's largest economy.

Despite the massive cost, government officials have made clear that raising fuel prices is not an option for the moment, fearful of the impact on inflation and a repeat of the social unrest that past price hikes have triggered.

"We recommended halting the subsidy for rich people by taking out the subsidy from private vehicles," said Chairul Tanjung, chairman of Yudhoyono's main economic advisory group.

The advisory committee's proposed cuts would not cover motorcycles and public transportation, including buses and taxis. Most Indonesians cannot afford their own cars.

Tanjung, a 51-year-old billionaire and founder of CT Corp estimated the bold measure would cut consumption of subsidized fuel by 52 percent. He spoke to Reuters on the resort island of Bali after lengthy meetings there with the president on fuel subsidies and trade.

The president will discuss the recommendations in a cabinet meeting next Thursday, when a final decision could be announced.

Critics say the plan would be difficult to enforce and that previous measures, such as banning the use of subsidized fuel for government cars, have done little to ease the crushing burden on the national budget. Last year, the subsidy bill was $22 billion -- nearly 4 percent of total economic output.   Continued...

Founder and chairman CT Corp Chairul Tanjung smiles as his sits in front of his portrait at a book shop during his book launch in Jakarta July 2, 2012. REUTERS/Beawiharta