A survey of Indonesia’s central bank (Bank Indonesia) shows that Indonesian consumer confidence declined slightly to 119.8 points in September 2014 (from 120.2 points in the previous month) on concerns that price increases will limit people’s purchasing power. These concerns are triggered by president-elect Joko Widodo’s plans to raise prices of subsidized fuels before the year-end in an effort to safeguard the country’s financial fundamentals. Widodo (popularly known as Jokowi) will be inaugurated on 20 October 2014.

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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.

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The Budgetary Committee of Indonesia’s parliament announced on Monday (22/09) that it proposes the government to spend 1.6 percent less on energy subsidies in 2015. Originally the government allocated IDR 363.5 trillion (USD $30.4 billion) for energy subsidies (which involves fuel and electricity subsidies) in 2015, up from IDR 350.3 trillion (USD $29.3 billion) in 2014. This would be good news for president-elect Joko "Jokowi" Widodo as he would imply have more fiscal room for his reform programs.

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Indonesian newspaper Investor Daily reported in today’s edition (11/09) that Joko Widodo (who will become Indonesia’s 7th president on 20 October 2014) plans to raise prices of subsidized fuel in November or December 2014. Reportedly, the price of gasoline (premium) will be raised by IDR 1,000 (USD $0.08) to IDR 7,500 (USD $0.64) per liter and the price of diesel (solar) by IDR 1,000 as well to become IDR 6,500 (USD $0.55) per liter. Meanwhile Widodo will enhance the social safety net to protect the poor.

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Fully state-owned energy company Pertamina announced that it has raised the selling price of liquefied petroleum gas (LPG) by 23 percent in an effort to cut losses from subsidized gas sales. The company said that it incurred losses of IDR 2.5 to 3.0 trillion in the first half of 2014 as a result of 12 kilogram LPG canisters sales. These LPG sales are heavily subsidized as the government determines a fixed price, below the market value. However, the government does not reimburse this difference in selling price and market value.

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The central bank of Indonesia (Bank Indonesia) indicated that it will only loosen its monetary policy provided that the country’s current account deficit narrows to a level of 2.5 percent of gross domestic product (GDP), which is considered sustainable, and inflation is kept within the range of 3.5 to 5.5 percent (year-on-year) in line with the central bank’s target range. The current account deficit is one of the main problems being faced by Southeast Asia’s largest economy today and causes concern among foreign and domestic investors.

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The Indonesian rupiah exchange rate had depreciated 0.20 percent to IDR 11,819 per US dollar by 15:30pm local Jakarta time based on the Bloomberg Dollar Index. This performance is in line with the performance of other emerging currencies in Asia, which all tend to weaken against today’s strengthening US dollar. One of the factors that pressures on the rupiah is the geopolitical tensions in Iraq which have resulted in a rising oil price (last week the oil price rose by 4.5 percent).

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Indonesian Finance Minister Chatib Basri expects that the higher electricity tariffs which may be introduced per 1 July 2014 (for 400-950 watt capacity) will have a relatively small impact on the pace of inflation in Southeast Asia’s largest economy. “If introduced, the higher electricity price may add 0.1 or 0.2 percentage point to inflation. The limited impact of this price hike on Indonesian inflation means that the government will not revise its inflation target for 2014 yet,” Basri said. The Indonesian government targets an inflation growth rate of 5.3 to 5.5 percent.

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One of Indonesia's main fiscal problems is the ever increasing amount of public funds spent on energy subsidies (these include fuels and electricity subsidies). These subsidies aim to support the poorer segments of Indonesian society but several studies conclude that it are in fact the middle class and elite segments that benefit the most of these energy subsidies. Furthermore, by keeping energy prices artificially low, the government distorts the economy by creating a more-or-less 'false economy'.

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Indonesian vice president Boediono stated at the opening of the two-day Green Infrastructure Summit in Jakarta (29/04) that Indonesia's heavily subsidized energy prices might be the key reason why the country has failed to make its development policy more environment friendly. According to Boediono, a national consensus - involving the central and regional governments, businesses, lawmakers and other stakeholders - is needed to systematically curb Indonesia's large energy subsidies.

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Speculation has emerged that Indonesian President-elect Joko Widodo (Jokowi) plans to raise prices of subsidized fuels immediately after taking office in late October 2014. On Tuesday (02 /09), Jokowi said that he sees no other option than to raise these prices in an effort to relieve the budget deficit, curb the wide current account deficit and make more funds available for long-term productive public investments (such as on infrastructure, healthcare and education). The government has set aside IDR 291.1 trillion (USD $25 billion) for fuel subsidies in 2015.

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In the past days, Indonesia’s fuel subsidy policy has been in the spotlight of Indonesian media continuously. When it was reported that incumbent President Susilo Bambang Yudhoyono (SBY) and newly elected president Joko Widodo would meet on the island of Bali this week to discuss various transitional matters, speculation emerged that the country’s generous fuel subsidies, which seriously burden the government’s budget as well as current account, might be wound down before the new government is inaugurated in October 2014.

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The sharply depreciated Indonesian rupiah exchange rate in the second half of 2013 in combination with the decline in domestic oil lifting has led to a soaring of fuel subsidy spending in 2014. In the 2014 State Budget (APBN 2014), the ceiling of energy subsidy spending for 3-kg LPG and fuels was set at IDR 210.7 billion (USD $18.3 billion). However, in the 2014 Revised State Budget Draft, the government proposes to raise the subsidy ceiling to IDR 285 trillion (USD $24.8 billion), thus swelling IDR 74.3 trillion from the initial ceiling.

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Indonesian cement sales fell 0.4 percent (year-on-year) to 4.52 million tons in April 2014. The decline in cement sales was the result of the country’s legislative election that was held on 9 April 2014 as consumers bought few building materials during the campaign period. Head of the Indonesian Cement Association (ASI) Widodo Santoso stated that a number of large infrastructure projects are currently being tendered and are thus unable to boost domestic cement sales yet.

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