Update COVID-19 in Indonesia: 29,521 confirmed infections, 1,770 deaths (5 June 2020)
05 June 2020 (closed)
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The depreciating Indonesia rupiah exchange rate has large consequences for Indonesia's state budget, in particular fuel subsidy spending, as the government imports a large quantity of its crude oil demand (in US dollars). The weak rupiah, which has depreciated about 25 percent against the US dollar since the start of 2013, results in a ballooning of fuel subsidy spending. In the Revised State Budget of 2013, fuel subsidies were set at IDR 199.9 trillion but after the rupiah's downslide, another IDR 50 trillion is needed to cover the imports.
Indonesia's rupiah exchange rate depreciated from IDR 9,670 per US dollar at the start of 2013 to IDR 12,081 on 13 December 2013. When the Revised State Budget of 2013 was set, the government used an exchange rate of IDR 9,600 per US dollar, an Indonesian crude oil price of USD $108 per barrel, and estimated domestic consumption volume at 48 million kiloliters.
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
“Because of the rupiah depreciation and the fact that we have to import our fuel, the budget may jump 25 percent at the end, which means another burden of IDR 50 trillion on the budget,” said Indonesia's Deputy Finance Minister at the International Seminar ‘Avoiding The Middle Income Trap: Lessons And Strategies for Indonesia to Grow Equitably and Sustainably, in Nusa Dua, Bali (12/12).
In the last five years, fuel subsidy spending has swollen by an average of 13.76 percent. This swelling is usually triggered by fuel consumption which exceeds the quota or a soaring Indonesian crude oil price. This year, however, the swelling of the fuel subsidies is triggered by the depreciating rupiah exchange rate. The rupiah steadily weakened since mid-July 2013 after large capital outflows emerged from Indonesia's capital markets due to the looming end of the Federal Reserve's quantitative easing program and the country's wide current account deficit. In the last month, the rupiah even fell above the psychological level of IDR 12.000 per US dollar.
This year, domestic fuel demand is not expected to exceed the quota that is set in the State Budget (48 million kiloliters) due to the government's decision to increase prices of subsidized fuels in June 2013. The Indonesian crude oil prices is also expected to stay within the target range until the end of the year. Up to November 2013, the average price was USD $105.7 per barrel, considerably below the assumption of USD $108 per barrel.
Government Fuel Subsidy Spending 2008-2012: