Indonesia raises fuel cost to ease subsidy burden on budget
INDONESIA raised some fuel prices as the government balances the risk of inflationary pressures against a ballooning energy subsidy bill.
The price of Pertalite, the most commonly used petrol, will increase more than 30 per cent to 10,000 rupiah (S$0.94) a litre, while the cost of non-subsidised fuel Pertamax will rise about 20 per cent to 14,500 rupiah, Energy Minister Arifin Tasrif said on Saturday (Sep 3). The changes are effective as at 2.30pm in Jakarta.
“State funds must be prioritised for people in need,” President Joko Widodo said at the same briefing, adding that more than 70 per cent of fuel subsidies is used by wealthier people who own cars. “At this time, the government must make a decision during a difficult time. This is our last option: to reallocate fuel subsidies.”
The subsidy cut is a shift in strategy for the government, which repeatedly said it would use its budget as an inflation “shock absorber”. That strategy has proven challenging as Jokowi has also pledged to return the deficit to within its legal limit of 3 per cent of gross domestic product (GDP) by 2023 from an estimated 3.92 per cent of GDP this year.
Energy subsidies are still set to increase by 137-151 trillion rupiah, depending on the average crude price by the end of the year, Finance Minister Sri Mulyani Indrawati said at the briefing. That is on top of the 500 trillion rupiah allocated in the latest budget. She previously said that stronger-than-expected consumption of subsidised fuel would increase the bill by 198 trillion rupiah without price hikes.
Past fuel price hikes have triggered massive public protests. Even with heavy subsidies, Indonesians are already contending with their worst inflation in 7 years, with food and transport costs soaring.
Pertalite was pegged at 7,650 rupiah per litre in April when it was designated as the government-subsidised fuel. Its prices in Jakarta were last raised in March 2018 by 4 per cent to 7,800 rupiah per litre, before declining in 2019.
Bank Indonesia unexpectedly raised its policy rates by 25 basis points to 3.75 per cent last month as it warned price pressures were spreading to more areas in the economy, and inflation could breach its 2-4 per cent target until 2023.
Analysts expect further rate hikes may be in the pipeline, as higher fuel prices could tip inflation past 7 per cent this year, above the central bank’s forecast of 5.24 per cent. BLOOMBERG
Share with us your feedback on BT's products and services
