Indonesia hikes fuel prices by up to 32% to rein in ballooning subsidies

The price of subsidised petrol will rise to 10,000 rupiah (S$0.94) a litre. PHOTO: EPA-EFE

JAKARTA - Indonesia on Saturday raised fuel prices by up to 32 per cent to rein in swelling energy subsidies that have weighed on its state budget, but the move will put a strain on the poor. 

Describing the decision as a “last option” for the government, President Joko noted that 70 per cent of the subsidies were enjoyed by owners of private vehicles. 

“The government is committed to ensure that the use of subsidies and public funds is well-targeted. Subsidies must benefit the poor more,” he told reporters, adding that the fuel subsidies would be channelled into social aids.

Indonesia has tripled its energy subsidy budget to 502 trillion rupiah (S$47.7 billion), about 16 per cent of this year’s budget, to maintain prices of subsidised petrol and diesel as well as some power tariffs amid global surging energy prices.

As in other past administrations, the decision to raise the fuel prices by Mr Widodo, who will end his second five-year tenure in 2024, was shadowed by concerns of political backlash.

Ahead of Saturday’s announcement, labour unions and students in some regions across the country, such as West Java, Central Java, East Java and South Sulawesi, staged protests rejecting the plan. 

The price of Pertalite, the most popular petrol brand, was raised by 31 per cent to 10,000 rupiah, while the price of subsidised diesel fuel was increased by 32 per cent to 6,800 rupiah, Energy and Mineral Resources Minister Arifin Tasrif said during the same press briefing.

The price of non-subsidised Octane-92 petrol Pertamax - currently sold below its market price by state-owned oil and gas company Pertamina - was also raised by 16 per cent to 14,500 rupiah. 

Mr Widodo reiterated on Saturday that 12.4 trillion rupiah worth of assistance to be distributed to 20.65 million low-income households will be in direct cash transfers. 
Each household will receive a monthly amount of 150,000 rupiah for four months.

Another 9.6 trillion rupiah will be channelled to 16 million workers with monthly earnings of 3.5 million rupiah, who will get 600,000 rupiah, while regional governments will provide 2.17 trillion rupiah in aid to public transport, motorcycle taxis and fishermen, he added.

Finance Minister Sri Mulyani Indrawati said during the press briefing that the government will monitor the impact of the fuel price hikes on inflation and poverty. 

“We estimate that with the extra social aid worth 24.17 trillion rupiah, we can avert the surge in the number of the poor, or decrease it with other programmes,” she said.

She had said last month that the overall energy subsidy for this year would be better allocated to build much-need infrastructure across the country, such as schools, toll roads and community health clinics.

The budget, for instance, could be used to build 3,333 hospitals or 227,888 elementary schools.

She also underlined that the fuel subsidies are not well targeted as most do not benefit low-income groups.

Ms Indrawati, the former managing director of the World Bank, pointed out that 89 per cent of the subsidy for diesel fuel benefits businesses, while 11 per cent supports households. However, of the portion that goes to the households, only 5 per cent is enjoyed by the poor, such as farmers and fishermen.

“This means we will create a widening gap with the subsidy,” she said. 

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