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NEWS UPDATES 8 October 2010

Budget deficit raised for subsidies

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The Indonesian government and the House of Representatives have agreed to increase the 2011 budget deficit by Rp 8.6 trillion ($963.2 million), with the money earmarked for energy subsidies and infrastructure development, a senior government official said on Thursday.

Agus Supriyanto, interim head of the Finance Ministry's Fiscal Policy Office, said the deficit would be increased to Rp 124.3 trillion, or 1.8 percent of the GDP, up from the 1.7 percent proposed in the original draft budget.

However, lawmakers and the government appear to still be at odds over energy subsidies, with the details to be worked out in talks to be held later this month.

Melchias Markus Mekeng, chairman of the House budget committee, said a portion of the extra deficit would be used to cover an additional allocation for the electricity subsidy.

But Agus offered a different story, saying the electricity subsidy would not be raised.

He did say, however, that some of the money would be spent on an additional allocation for the fuel subsidy.

Energy and Mineral Resources Minister Darwin Zahedy Saleh last month agreed to demands by House Commission VII, which oversees energy issues, to scrap a planned electricity rate hike for next year.

However, Darwin later said there had been no agreement, and that the government would still seek a rate hike in budget talks this month.

But Melchias has insisted that the House would not approve an increase in power rates.

"We agree to increase the deficit to 1.8 percent as a result of our decision not to increase electricity price next year," he said.

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