* Budget deficit to widen to 2.5 pct of GDP due to high fuel
* Rising fuel subsidy costs an issue in presidential
* 2014 oil subsidy seen at $25 bln, more than 15 pct of
(Recasts, adds presidential decree to trim spending)
By Adriana Nina Kusuma and Randy Fabi
JAKARTA, May 20 Indonesia's next president will
need to quickly tackle a growing fuel subsidy problem, as the
country's budget deficit draws uncomfortably close to the
legally-binding limit of 3 percent of gross domestic product.
Outgoing President Susilo Bambang Yudhoyono on Tuesday
proposed a revised 2014 budget that sees a much wider fiscal
deficit than initially forecast - thanks largely to high
fuel-subsidy costs - and he decreed some spending cuts to help
contain the budget gap.
The ballooning subsidy cost has become a major economic
issue for the two presidential candidates ahead of the July 9
election. Both agree the government's fuel bill must be reduced,
but have different solutions for the problem.
In his revised budget proposal, Yudhoyono estimated that
this year's fiscal deficit will be 2.5 percent of GDP, much
larger than the initial forecast of 1.69 percent. It also
projected a 2015 budget deficit at between 1.7 and 2.5 percent.
Last year, Yudhoyono was forced to hike fuel prices to keep
the budget deficit below the 3 percent threshold. In the end,
the deficit during 2013 was 2.38 percent of GDP.
This year's widening deficit is mainly due to a projected
increase in oil subsidies to 285 trillion rupiah ($24.96
billion) - more than 15 percent of the total budget - from an
initial estimate of 210.7 trillion rupiah.
SOME CUTS IN SPENDING
To help offset some of the higher fuel costs, the
president's decree cuts the budgets of a number of ministries,
saving around 100 trillion rupiah. But even with those cuts,
total spending will be higher than originally planned, thanks to
the fuel subsidies.
"We are open to all options on cutting subsidies," chief
economic minister Chairul Tanjung, who was appointed last week
to fill a vacancy, told reporters. "If it's impossible for this
government, then we will prepare for the next government."
The new government will take over in October.
For months, presidential contest frontrunner Joko "Jokowi"
Widodo has maintained a significant lead over ex-general Prabowo
Subianto in opinion polls. But the election turned into a tight
race on Monday after the country's No. 2 party unexpectedly
switched its support from Jokowi to his main rival.
Economists prefer Jokowi's plan to slowly reduce fuel
subsidies over the next few years, which could save the
government $30 billion in costs.
Prabowo aims to keep fuel prices at current rates but impose
measures to ensure the subsidies are only used by the poor and
lower middle class. Analysts think this option would be too
difficult to effectively implement.
($1 = 11,417.50 rupiah)
(Additional reporting by the Jakarta bureau; Editing by Richard