President Joko Widodo this morning spoke about a possible imminent price hike to subsidized fuel, while stressing that any such executive decision will be based on greater economic considerations.
Previously, Coordinating Maritime Affairs and Investment Minister Luhut Pandjaitan said that Jokowi would this week announce price hikes to the subsidized and hugely popular 90-octane rated fuel Pertalite amid rising global oil prices.
Acknowledging that weaning the country off subsidized Pertalite might be a necessity, Jokowi said this morning that the government will not make any rash decisions.
“This affects the livelihoods of so many people, so it must be decided on carefully. We must calculate the effects, so as not to shrink people’s purchasing power, increase their household spending, and boost inflation that could slow economic growth,” the president said in Jakarta.
Amid a global energy tumult, the Indonesian government has earmarked IDR502 trillion (US$33.7 billion) for energy subsidies, up from the IDR170 trillion (US$11.4 billion) initially set in this year’s state budget.
The subsidy for Pertalite ostensibly targets low cost vehicles and motorcycles, but the fuel has also been popular for higher-end vehicles. Pertalite currently costs IDR7,650 (US$0.51) per liter, but Jokowi previously said that its actual cost is IDR17,100 (US$1.15) per liter.
It seems there is more to lose by putting the brakes on the Pertalite subsidy. In addition to Jokowi’s concerns about ripple effects towards the economy, Center of Reform on Economics (CORE) Executive Director predicts that 100,000 Indonesians may plunge into poverty if Pertalite’s retail price is raised to IDR10,000 (US$0.67) per liter.
The government is also considering alternative measures, such as limiting Pertalite supply to only users of low cost vehicles and motorcycles.
