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Indonesia budget highlights fuel subsidy challenge

Energy subsidies are set to eat up a huge chunk of the Indonesian budget again next year, the president said on Friday (Aug 15), highlighting the challenge for incoming leader Joko Widodo to reduce the crippling payouts.

JAKARTA: Energy subsidies are set to eat up a huge chunk of the Indonesian budget again next year, the president said on Friday (Aug 15), highlighting the challenge for incoming leader Joko Widodo to reduce the crippling payouts.

At current rates, fuel and electricity subsidies are expected to cost 363.5 trillion rupiah (S$39 billion), up slightly from this year, according to a draft budget for 2015 presented by President Susilo Bambang Yudhoyono.

That is around 18 percent of the budget, with fuel subsidies the main drain on state coffers.

The subsidies are historically a tense political issue in Indonesia, where fuel price hikes to reduce the payouts have been met with massive protests and caused divisions between coalition partners in government. But economists say cutting the subsidies is vital, as they are a major drain on the economy, taking money away from other areas where it is sorely needed.

The subsidies have also been criticised as being poorly targeted, as they give the rich as much of a discount on fuel as the poor. Yudhoyono, who will step down as president in October after serving a maximum of two terms, has made some limited cuts during his tenure but has been criticised for not going nearly far enough.

He called on the next government to divert energy subsidies to the poor. "Moving forward, it is necessary for the government and legislature to understand this," he said, adding they must "take the steps and work together to ensure our subsidies are well targeted and that the amount spent on subsidies is not excessive".

The last time the parliament approved a hike was in 2013, a move that triggered protests around the sprawling archipelago nation.

Yudhoyono said the government forecast growth of 5.6 percent in 2015, while inflation was expected to ease to 4.4 percent and the rupiah would stabilise at 11,900 to the US dollar.

The government allocated around US$10 billion to the public works and transport ministries to give the country's ageing infrastructure a facelift and attract more investment.

The draft 2015 budget must be approved by parliament, and the final version may differ as Yudhoyono has invited president-elect Widodo, who won last month's presidential poll, to incorporate his programmes into it. Widodo, known by his nickname Jokowi, will be inaugurated in October.