BI Ready, if New Government Raises Oil Price: Official

Bandung, W Java (Antara) - Bank Indonesia is ready to control inflation if the next government increases fuel prices, the executive director of monetary and economic policies, Juda Agung, said here on Saturday. "The impact will only last for three months, so if the fuel price hike occurs in October, its impact will end by January," he said. Juda added that the challenge to be faced by the next government is due to the fiscal risks in which the energy subsidy burden will be larger and cause the budget deficit to rise. "If the subsidy burden in the budget is not reduced, the deficit could reach more than 2.4 percent of the GDP, while the limit is three percent," he said. "The national budget, which is supposed to be able to boost growth, cannot function maximally due to a spending cut," Juda said. Juda noted, based on his calculation, if the fuel price is increased by Rp1000 per litter, the impact on inflation will be about 1.6 percent. "If it is increased by Rp2,000, we may just double the figure," he said. He admitted that with the fuel price hike, the inflation target will not be met. "Indeed, the inflation target will not be met, but the economic structure and fundamentals would be better, so the economy would also grow higher," he said. Juda added that it would be better if the government would apply a fixed fuel subsidy policy to assure that the budget is not burdened excessively. In response to presidential candidates' plans to cause the country's economy to grow more than seven percent, he predicted that in 2010-2012 the economy could grow above six percent. At a time when Indonesia faces a trade deficit and commodity prices are down, it will be difficult to make the economy grow above six percent, he said. "Without maximal structural reforms the economy may only grow six percent, and so one must not expect seven percent growth. But with structural reforms, the economy may grow 6.5 to 7.0 percent," he added. (*)