Indonesia Hikes Fuel Prices By 30% As Gov't Deficit Soars Due To Subsidies

Indonesia has raised subsidized fuel prices by about 30% on Saturday, Sept. 3, 2022, top officials said, as the government moves to rein in ballooning subsidies despite a risk of mass protests, Stanley Widianto and Gayatri Suroyo reported for Reuters.

Photo Insert: The price of subsidized gasoline was raised to 10,000 rupiah (67 US cents) a liter from 7,650 rupiah, while that of subsidized diesel rose to 6,800 rupiah a liter from 5,150 rupiah, energy minister Arifin Tasrif said.

The price of subsidized gasoline was raised to 10,000 rupiah (67 US cents) a liter from 7,650 rupiah, while that of subsidized diesel rose to 6,800 rupiah a liter from 5,150 rupiah, energy minister Arifin Tasrif said.

"I actually wanted domestic fuel prices to remain affordable by providing subsidies, but the budget for subsidies has tripled and will continue to increase," President Joko Widodo told a news conference. "Now the government has to make a decision in a difficult situation. This is the government's last option," Jokowi, as the president is known, said.

Southeast Asia's largest economy had already jacked up its 2022 energy subsidies to 502 trillion rupiah ($34 billion), three times the original budget, pushed by rising global prices of oil and a depreciating rupiah currency.

If prices were not raised, the budget would have ballooned further to 698 trillion rupiah, Finance Minister Sri Mulyani Indrawati said. She estimated total energy subsidies would range between 591 trillion and 649 trillion rupiah for this year following the price hike, assuming the average crude price stays in a range of $85 to $100 a barrel for the remainder of 2022.

High energy subsidies had previously kept Indonesia's inflation low, allowing the central bank to delay raising interest rates until last month, well behind regional and global peers. The August inflation rate was 4.69%, Ananda Teresia and Fransiska Nangoy also reported for Reuters.

Fuel prices are a politically sensitive issue in Indonesia, and the changes will have major implications for households and small businesses, as subsidized fuel accounts for more than 80% of state-owned oil giant Pertamina's sales. The last fuel price hike was in 2014, months after Jokowi took office. That sparked protests across the archipelago.

The opposition Labor Party has arranged a protest involving thousands of workers for Tuesday, chairman Said Iqbal, who also heads a trade union, told Reuters, and asked parliament to pressure the government to cancel the price hike. "This will hurt purchasing power," he said.

"Wages have not increased for three years and inflation is bound to rise sharply." Small protests against any price hike, mostly led by students, had erupted in the past few days in several cities.

The government has allocated an additional total of 24.17 trillion rupiah for cash handouts to help the poor cope with the policy's impact, Jokowi said. After the price hike announcement, Pertamina said it was committed to ensuring adequate fuel supplies nationally.

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