Indonesia's government and a parliamentary budget committee have agreed to cap fuel subsidies at 113.7 trillion rupiah ($10.98 billion) this year, much lower than previous official estimates, a legislator said on Thursday.
Amin Said Husni, deputy head of the budget commission, said this amount would be used to help determine by how much the government would raise fuel prices as part of efforts to take pressure off the budget and the fragile rupiah currency.
"The figure will be used as a reference," Husni told Reuters when asked if it would help calculate the price hikes.
Ballooning fuel subsidies - the original 2005 budget estimate was for just 19 trillion rupiah - have raised concerns about Indonesia's fiscal sustainability and hurt the rupiah, which slumped to four-year lows against the dollar last week.
The government had recently forecast that without any jump in domestic fuel prices, fuel subsidies could hit 138.6 trillion rupiah this year, about one quarter of total budget expenditure.
That had assumed an average oil price of $54 a barrel and the rupiah currency at 9,800 per dollar. Oil prices are currently around $65/bbl and the rupiah is at 10,365/10,385.
Indonesia imports large amounts of oil and oil products. It has been forced to sell rupiah for dollars to pay for oil imports, hitting the rupiah as well as hurting the economy and the budget as world oil prices have soared.
Last week, President Susilo Bambang Yudhoyono promised to raise the politically sensitive fuel prices, but he has not given any timeframe or estimates of the size of the cut.
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