Indonesia plans to use welfare budget to counter food inflation: Finance minister

Authorities are scrambling to control a spike in cooking oil prices after initial measures failed to fix the problem. PHOTO: REUTERS

JAKARTA (REUTERS) - Indonesia's government will use its 154 trillion rupiah (S$14.7 billion) social protection budget, designed to shield the vulnerable from the fallout of the Covid-19 pandemic, to safeguard consumers from rising food prices, its finance minister said on Wednesday (March 16).

Ms Sri Mulyani Indrawati made the comment as authorities scramble to control a spike in cooking oil prices after initial measures failed to fix the problem.

"We have to be very vigilant, but we are providing 154 trillion rupiah as a cushion on social protection related to this maybe extreme pressure coming from commodity prices," she told a seminar hosted by Fitch Ratings.

The minister did not say how the budget would be used to dampen food prices.

The government has said it would subsidise cooking oil using revenue from a palm oil export levy.

Ms Sri Mulyani also noted that wheat prices were rising due to the Russia-Ukraine conflict.

Indonesia imported nearly US$1 billion (S$1.36 billion) of wheat last year from Ukraine, the country's second-biggest supplier.

South-east Asia's largest economy remained resilient even as the Ukraine conflict heightened financial market volatility, Ms Sri Mulyani said, noting inflation remained low, the rupiah stable and foreign exchange reserves bolstered by trade surpluses driven by high commodity prices.

Indonesia's fiscal policy could be "altered and refocused" to respond to the latest situation, she said, noting that a planned hike in value added tax and a new carbon tax - set to kick in next month - would be implemented carefully.

However, during the seminar, Fitch Ratings' head of Asia-Pacific sovereigns Thomas Rookmaaker said Indonesia's budget was constrained by mandatory health and education spending as well as plans for projects like relocating its capital city.

Authorities may have to choose between cutting petrol subsidies and allowing prices to rise, delaying a plan to bring back a 3 per cent fiscal deficit ceiling next year or reducing infrastructure spending, he said.

"We think the option of dropping the fiscal deficit target of 3 per cent by 2023 is the least likely option," Mr Rookmaaker said.

President Joko Widodo has ordered fuel prices be kept steady to control inflation.

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