Indonesian Finance Minister Chatib Basri stated that the Indonesian government plans to set aside a total of IDR 10 trillion (USD $837 million) in the state budgets of 2014 as well as 2015 to support the poor people of Indonesia through social safety programs. This is yet another indication that prices of subsidized fuels will be raised before the end of the year. Recently, it has been increasingly speculated that Indonesian president-elect Joko Widodo (“Jokowi”) will raise these prices by IDR 3,000 (USD $0.25) per liter.
As generous government subsidies for fuel (and electricity) distort the government’s budget balance and current account deficit (due to expensive oil imports) - and hamper public spending on infrastructure and social development - Jokowi is determined to reduce the country’s energy subsidies (specifically fuel subsidies). However, this unpopular measure will - apart from demonstrations - cause accelerated inflation in Southeast Asia’s largest economy and can therefore push millions of Indonesians who live just above the poverty line into poverty. Usually, the effects of a fuel price hike are felt for three months after the hike. The central bank of Indonesia (Bank Indonesia) expects inflation to accelerate to 9 percent (year-on-year) if subsidized fuel prices are raised by IDR 3,000 per liter. In August 2014, Indonesian inflation reached 3.99 percent (year-on-year).
Basri said that the government had already allocated IDR 5 trillion (USD $418 million) for the social safety programs in the Revised 2014 State Budget (RAPBN 2014) which would be sufficient to cover direct cash transfers to the poor. However, the incumbent government has now proposed an additional IDR 5 trillion for 2015 (which still requires approval of the House of Representatives).
Earlier this week, the Budgetary Committee within Indonesia’s House of Representatives (DPR) and government agreed to reduce fuel subsidies to IDR 276.1 trillion for 2015. Originally, the government had allocated IDR 291.1 trillion for fuel subsidies next year.
Indonesian Energy Subsidies:
|Year|| Fuel Subsidies
in trillion rupiah