Indonesia's president demurs on timing of fuel price hike

[MAMUJU, Indonesia] Indonesian President Joko Widodo said on Thursday he has not yet decided on the timing of a fuel price hike, signalling a possible delay in cutting massive fuel subsidies that are straining the state's finances. "Until this second, we have not yet decided (on a the timing of fuel price hike)," Mr Joko told reporters during a visit to the capital of West Sulawesi province.

Vice President Jusuf Kalla said earlier this week that fuel prices, currently among the lowest in the region, would be raised this month.

Cutting fuel subsidies, which eat up nearly 20 per cent of the state budget, are seen as crucial to reducing the country's budget and current account deficits.

Investors are watching closely for an increase in fuel prices as data released this week showed Indonesia's economy grew 5.01 per cent in the third quarter, its slowest pace in five years.

"Higher fuel price hikes will ease pressure on the state budget," local brokerage Danareksa said in a research note.

"But the impact from these savings would only be felt in the longer term while ... higher inflation and higher interest rates would discourage investors in the short term."

Mr Joko's government this week expanded the country's social assistance programmes, handing out cards that guarantee access to free healthcare and education for millions of the poorest Indonesians.

Many see these safety net programmes as a precursor to raising fuel prices, a politically and socially sensitive move in a country where nearly 40 per cent of the population lives on less than US$2 a day.

Mr Joko's plan to cut fuel subsidies and redirect funds to building much-needed infrastructure faces opposition from the country's parliament and even from his own party. But the president does not require parliamentary approval for the price hike.

REUTERS