It remains unknown whether the electricity price will indeed be raised per July 2014 as this decision still needs approval of the House of Representatives' Commission VII on energy affairs. The government wants to increase the price in order to reduce funds spent on energy subsidies in an attempt to make the country’s financial framework healthier. In 2014, the government has allocated a total of IDR 282.1 trillion (USD $70.2 billion) to energy subsidies. This involves IDR 210.7 trillion worth of fuel subsidy and IDR 71.4 trillion worth of electricity subsidy. By raising the electricity price, the government hopes to save IDR 8.5 trillion (USD $720.3 million). Speculation has also risen that the government will raise prices of subsidized fuels later this year or in 2015. However, reducing energy subsidies always triggers public outcry, demonstrations as well as accelerated inflation (with the risk of pushing many people into poverty) and thus imply political risks for the ruling parties. The last time, the government raised subsidized fuel prices - by an average of 33 percent - was in June 2013 (inflation accelerated to nearly 9 percent year-on-year).


Ind
onesian Energy Subsidies 2005-2014:

Year   Fuel Subsidy
  Electricity Subsidy
  Total Energy
    Subsidies
2014         210.7               71.4          282.1
2013         193.8               80.9          274.7
2012         137.4               65.0          202.4
2011         165.2               90.4          255.6
2010          82.4               57.6          140.0
2009          45.0               49.5           94.6
2008         139.1               83.9          223.0
2007          83.8               33.1          116.9
2006          64.2               30.4           94.6
2005          95.6                8.9          104.4

in IDR trillion
Source: Investor Daily

Deputy Finance Minister Bambang Brodjonegoro also stated that, contrary to higher subsidized fuel prices, the influence of the possible higher electricity tariffs on inflation is limited at around 0.2 percent. Higher subsidized fuel prices immediately add at least 1 percent to inflation as these subsidies can be labelled an engine of economic growth in Indonesia.

Deputy Governor of Bank Indonesia Perry Warjiyo said that inflation in 2014 is expected to reach about five percent, which is well within the central bank’s inflation target range of 3.5 to 5.5 percent (year-on-year) for this year.

 
Inflation in Indonesia:


Month  Monthly Growth
          2013
 Monthly Growth
          2014
January          1.03%          1.07%
February          0.75%          0.26%
March          0.63%          0.08%
April         -0.10%         -0.02%
May         -0.03%          0.16%
June          1.03%  
July          3.29%  
August          1.12%  
September         -0.35%  
October          0.09%  
November          0.12%  
December          0.55%  
Total          8.38%          1.56%

 

    2008   2009   2010   2011   2012   2013
Inflation
(annual percent change)
   9.8    4.8    5.1    5.4    4.3    8.4

Source: Statistics Indonesia

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