MARKET DEVELOPMENT
Govt Sells $3B Deficit-Cut Plan
Govt Sells $3B Deficit-Cut Plan
27/08/2013 (Jakarta Globe) - Following criticism on Friday that its economic stimulus package lacked information, the national government on Monday revealed financial details on its plan to curb oil imports, saying it hopes it will help wipe $3 billion off the current account deficit.
On Friday the government announced it would increase the mandatory content of the so-called fatty acid methyl ester made from crude palm oil in biodiesel products to 10 percent, from 7.5 percent.
The policy aims reduce fuel imports, which stood at $5.8 billion in the first half of the year, according to the Central Statistics Agency (BPS).
Hatta Rajasa, the coordinating minister for the economy, told a news conference on Monday that the current account deficit — which reached $9.8 billion in the second quarter — would likely fall in coming months.
“From the biodiesel program alone, we can decrease fuel imports by up to $3 billion,” Hatta said.
Hatta said domestic producers are ready to comply with the government biodiesel program given production capacity is under-utilized.
“The installed capacity was 5.67 million kiloliters per year, and there are plans to increase it by another 3 million kiloliters, but the mandatory requirement is only 3.14 million kiloliters,” Hatta said.
The program will also create domestic demand and in turn support the palm oil industry, enduring a slump in global commodities prices and a refusal by some countries to import the product because of environmental concern, he minister said.
Hatta said domestic diesel consumption was 35 million kiloliters a year, split evenly between subsidized and non-subsidized products.
The program will require all users, including miners and plantation operators, to use the 10 percent biodiesel, under the threat of so-far unspecified penalties.
Mahendra Siregar, the deputy finance minister, said the program would have an immediate impact on the deficit.
“Oil imports are poised to fall next month. Not only because of the program but also the recent decision to raise the price of subsidized fuel.
Paulus Tjakrawan, the chairman of the Association of Indonesian Biofuel Producers, said the industry was committed to the program because it can ease the negative impact of global forces.
Rida Mulyana, the director general for renewable energy at the Energy and Mineral Resources Ministry, said the program is set to be implemented this week.
“The Energy Ministry will issue a supporting regulation in the coming days,” he added.
Bank Danamon chief economist Anton Gunawan said the biodiesel content enhancement was a worthwhile policy, but added that the government could go further by encouraging conversion of vehicles from gasoline to gas in order to cut oil and gas imports. He also warned that the policy change may have come too late.
In the $9.8 billion second-quarter current account deficit, trade in crude posted a deficit of $1.78 billion and trade in oil products left a deficit of $11.6 billion, while gas sales yielded a $7.56 billion surplus.
On Friday the government announced it would increase the mandatory content of the so-called fatty acid methyl ester made from crude palm oil in biodiesel products to 10 percent, from 7.5 percent.
The policy aims reduce fuel imports, which stood at $5.8 billion in the first half of the year, according to the Central Statistics Agency (BPS).
Hatta Rajasa, the coordinating minister for the economy, told a news conference on Monday that the current account deficit — which reached $9.8 billion in the second quarter — would likely fall in coming months.
“From the biodiesel program alone, we can decrease fuel imports by up to $3 billion,” Hatta said.
Hatta said domestic producers are ready to comply with the government biodiesel program given production capacity is under-utilized.
“The installed capacity was 5.67 million kiloliters per year, and there are plans to increase it by another 3 million kiloliters, but the mandatory requirement is only 3.14 million kiloliters,” Hatta said.
The program will also create domestic demand and in turn support the palm oil industry, enduring a slump in global commodities prices and a refusal by some countries to import the product because of environmental concern, he minister said.
Hatta said domestic diesel consumption was 35 million kiloliters a year, split evenly between subsidized and non-subsidized products.
The program will require all users, including miners and plantation operators, to use the 10 percent biodiesel, under the threat of so-far unspecified penalties.
Mahendra Siregar, the deputy finance minister, said the program would have an immediate impact on the deficit.
“Oil imports are poised to fall next month. Not only because of the program but also the recent decision to raise the price of subsidized fuel.
Paulus Tjakrawan, the chairman of the Association of Indonesian Biofuel Producers, said the industry was committed to the program because it can ease the negative impact of global forces.
Rida Mulyana, the director general for renewable energy at the Energy and Mineral Resources Ministry, said the program is set to be implemented this week.
“The Energy Ministry will issue a supporting regulation in the coming days,” he added.
Bank Danamon chief economist Anton Gunawan said the biodiesel content enhancement was a worthwhile policy, but added that the government could go further by encouraging conversion of vehicles from gasoline to gas in order to cut oil and gas imports. He also warned that the policy change may have come too late.
In the $9.8 billion second-quarter current account deficit, trade in crude posted a deficit of $1.78 billion and trade in oil products left a deficit of $11.6 billion, while gas sales yielded a $7.56 billion surplus.