Indonesia raises fuel prices by 30% and cuts energy subsidies

Jakarta, Indonesia — Fuel prices rose around 30% across Indonesia on Saturday after the government cut some of the costly subsidies that have kept inflation in Southeast Asia’s biggest economy among the lowest in the world. world.

Indonesians have been worried for weeks about an impending increase in the price of subsidized Pertalite RON-90 gasoline sold by Pertamina, the state-owned oil and gas company. Long lines of motorbikes and cars snaked around petrol stations as motorists waited for hours to fill up with cheaper petrol before the increase took effect on Saturday.

The increase – the first in eight years – took the price of gasoline from about 51 cents to 67 cents per liter and diesel fuel from 35 cents to 46 cents.

President Joko Widodo said the decision to raise fuel prices was his last option as the country’s energy subsidy had tripled this year to 502 trillion rupees ($34 billion) from its original budget, triggered by rising world oil and gas prices.

“The government has done its best because I really want fuel prices to remain affordable,” Widodo said in a televised speech announcing the fuel hike. “The government has to make decisions in difficult situations.”

He said the flow of grants to the public was not well targeted – around 70% of grants benefited the middle and upper classes – and that the government had instead decided to increase social assistance.

Finance Minister Sri Mulyani Indrawati said authorities were monitoring the impact on inflation and economic growth of the fuel price hike.

Inflation has been relatively modest, the shock being mainly absorbed by a budget reinforced by energy subsidies. Inflation hit 4.6% in August as Bank Indonesia, the central bank, said it would reassess the inflation outlook in response to the government’s fuel price policy.

Indrawati told a separate press conference that the government would provide 150,000 rupees ($10) in cash to cushion the impact of the fuel price hike on 20.6 million poor families until the end. of the year. The total cost of the donations will be 12.4 trillion rupees, which will be reallocated from the energy subsidy budget.

She said the government would also spend 9.6 trillion rupees ($644 million) in wage support to around 16 million low-wage workers, and 2.17 trillion rupees ($145 million) would go to subsidizing the transport costs, especially for moto-taxi drivers and fishermen.

“We hope this can reduce the pressure of rising prices and help alleviate poverty,” Indrawati said.

The government has been subsidizing fuel for decades in Indonesia, the vast archipelago of more than 270 million people.

Fuel prices are a politically sensitive issue that could trigger further price hikes and risk student protests. In 1998, a price hike sparked riots that helped topple longtime dictator Suharto.

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