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The Indonesian government indicated on Monday that subsidized fuel oil prices are likely to be raised in a move that would enable the government to save up to Rp25.877 trillion in subsidy funds from the state budget.

Speaking to members of the press, President Susilo Bambang Yudhoyono said "We have now arrived at a stage where we are considering how much the fuel oil prices would be raised, by 25 percent or 30 percent. So, we are no longer thinking of whether or not to raise the prices."

Yudhoyono said the government needed to make the necessary preparations before raising fuel oil prices and was also taking into account the impact the price hike would have on the population if subsidized oil prices were increased.

"We hope we would make the correct calculations soon so that the market would have an assurance that our decision is correct and made at the correct time as well," Yudhoyono said.

Sources at the Finance Ministry last week said the governmet was evaluating a plan to raise subsidized fuel oil prices by 28.7 percent in June.

The price of premium gasoline was reportedly expected to be increased fom Rp4,500 to Rp6,000 perliter, diesel oil from Rp4,300 to Rp5,500 and kerosene from Rp2,000 to Rp2,300 per liter. The increases would enable the government to save up to Rp25.877 trillion in subsidy funds from the state budget.

With the price of crude oil now reaching $120 a barrel during yesterday's session of trading on the New York Mercantile Exchange (NYMEX), the fuel subsidy would rise to more than Rp125 trillion, increasing the financial burden on the state budget.

The government's plan to potentially raise fuel oil prices has been met with resistance in some circles. Last week, Murphy Hutagalung, Chairman of The Organization of Land Transportation Operators (Organda) said "I absolutely reject the plan. Even now, transportation cost takes 30 percent of our income per capita while in many developed countries, the portion is only 10 percent."

The government will be aware that the plan to raise subsidized fuel oil prices may prove to be unpopular amongst voters ahead of next year's elections. However, the plan is backed by businesses grouped in the Chamber of Commerce and a number of market experts believe the government should not delay its decision as it could create uncertainty and have a negative effect on the Indonesian economy.