Indonesia hikes fuel prices to rein in ballooning subsidies
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[September 03, 2022]
By Stanley Widianto and Gayatri Suroyo
JAKARTA (Reuters) -Indonesia raised
subsidised fuel prices by about 30% on Saturday, as the government moves
to rein in ballooning subsidies despite a risk of mass protests.
The price of subsidised gasoline was raised to 10,000 rupiah ($67 U.S.
cents) a litre from 7,650 rupiah, while that of subsidised diesel rose
to 6,800 rupiah a litre from 5,150 rupiah, energy minister Arifin Tasrif
said.
"I actually wanted domestic fuel prices to remain affordable by
providing subsidies, but the budget for subsidies has tripled and will
continue to increase," President Joko Widodo told a news conference.
"Now the government has to make a decision in a difficult situation.
This is the government's last option," said Jokowi, as the president is
known.
Southeast Asia's largest economy had already jacked up its 2022 energy
subsidies to 502 trillion rupiah ($34 billion), triple the original
budget, pushed by rising global prices of oil and a depreciating rupiah
currency.
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If prices were not raised, the budget would have ballooned to 698
trillion rupiah, said Finance Minister Sri Mulyani Indrawati.
She estimated total energy subsidies would range between 591 trillion
and 649 trillion rupiah for this year following the price hike, assuming
the average crude price stays between $85 and $100 a barrel the rest of
the year.
High energy subsidies had restrained Indonesia's inflation, at 4.69% in
August, allowing the central bank to delay raising interest rates until
last month, well behind regional and global peers.
Hariyadi Sukamdani, head of the Indonesian Employers Association, said
price pressure from the fuel price hike would not be too much,
predicting inflation will top 6% at the end of the year.
"If prices of goods are too expensive, people won't buy. We can't raise
prices too much," he said.
Businesses are using unsubsidised fuels, but the price hike will affect
logistics costs, Hariyadi said.
Still, accelerating inflation could put pressure on Bank Indonesia (BI)
to tighten monetary policy more quickly. The bank holds a two-day policy
meeting ending on Sept. 22.
Bank Mandiri economist Faisal Rachman estimated inflation could
accelerate to between 6% and 7% and BI could raise the policy rate to
4.25% this year from 3.75% now.
Faisal forecasts 5% economic growth this year despite the fuel price
increase, supported by commodity exports and post-pandemic mobility,
adding that the government's cash distribution could help cushion some
of the impact on consumption. The economy grew 5.44% in the April-June
quarter.
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![](../images/090322PIX/news_n87.jpg)
Motorcycle drivers wait in line to buy
subsidised fuel at a petrol station of the state-owned company
Pertamina after the announcement of a fuel price hike, in Bekasi, on
the outskirts of Jakarta, Indonesia, September 3, 2022. REUTERS/Ajeng
Dinar Ulfiana
![](http://archives.lincolndailynews.com/2022/Sep/03/images/ads/current/LPL_small%201.gif)
The government has allocated an additional 24.17 trillion rupiah for
cash handouts to help the poor cope with the policy's impact, Jokowi
said.
POLITICALLY SENSITIVE
Fuel prices are politically sensitive in Indonesia, and the changes
will have major implications for households and small businesses, as
subsidised fuel accounts for more than 80% of state-owned oil giant
Pertamina's sales.
The last fuel price hike was in 2014, months after Jokowi took
office, aiming to free up fiscal space. That sparked protests across
the archipelago.
The opposition Labour Party has arranged a protest involving
thousands of workers for Tuesday, chairman Said Iqbal, who also
heads a trade union, told Reuters. He called on parliament to
pressure the government to cancel the price hike.
"This will hurt purchasing power," he said. "Wages have not
increased for three years and inflation is bound to rise sharply."
Small protests against any price hike, mostly led by students, had
erupted in the recent days in several cities.
After the price hike announcement, Pertamina said it was committed
to ensuring adequate fuel supplies nationally. Cars were seen
queuing in some stations in the capital Jakarta after the
announcement.
Pertamina, Asia's biggest gasoline importer, had deferred some of
its gasoline deliveries for September ahead of the price hike, due
to an expected drop in fuel demand, traders said.
Decades ago Indonesia was a major oil exporter, becoming a member of
the Organization of Petroleum Exporting Countries in the 1960s, but
its oil output declined and it turned to net oil importer in the
2000s. Indonesia is still an exporter of gas.
($1 = 14,895.0000 rupiah)
(Additional reporting by Fransiska Nangoy, Ananda Teresia and
Bernadette Christina; Editing by Clarence Fernandez, Ed Davies,
William Mallard and Simon Cameron-Moore)
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