"The CGI supports the policies we have taken, especially on fuel subsidy, by shifting to targeted subsidy from price subsidy," Coordinating Minister for the Economy Aburizal Bakrie told a press briefing after attending CGI mid-term meeting.
Over the weekend, the government took many by surprise by implementing bigger-than-expected fuel price increases.
The price of premium gasoline was raised 87.5 pct to 4,500 rupiah per liter under a presidential decree while the price of diesel fuel was hiked 105 pct to 4,300 rupiah per liter.
The price of kerosene for household use was raised by a huge 186 pct to 2,000 rupiah per liter.
Analysts had predicted a maximum price increase of 80 pct for premium gasoline and about 82 pct for diesel fuel.
The government's decision to hike prices aims to limit fuel subsidy at 89.2 trln rupiah this year and keep the fiscal deficit at below 1.0 pct of GDP.
Bakrie said the government is committed to providing bigger compensation to the needy through direct subsidy while continuing to phase out subsidies to the affluent.
He predicts that subsidy to the poor would reach over 25 trln rupiah next year from less than 20 trln this year.
Analysts earlier said they welcome the higher-than-expected fuel price hike despite the initially negative impact this would have on the economy.
Standard & Poor's Rating Services said the hike is an encouraging move that should relieve immediate pressure on the country's fiscal position and external balance. It said the price hike should also allay concerns about progress in fiscal consolidation.
(1 usd = 10,310 rupiah)
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