Indonesia Hikes Fuel Prices to Rein in Ballooning Subsidies

FUEL POLICY - JAKARTA. Indonesia will raise subsidised fuel prices by about 30% on Saturday, top officials said, as the government moves to rein in ballooning subsidies despite a risk of mass protests.

From 2:30 p.m. (0730 GMT), the price of subsidised gasoline will rise to 10,000 rupiah ($67 U.S. cents) a litre from 7,650 rupiah, while that of subsidised diesel will increase to 6,800 rupiah a litre from 5,150 rupiah, energy minister Arifin Tasrif said.

President Joko Widodo said the decision to adjust fuel prices was a difficult one and was his "last option".

The subsidy budget in Southeast Asia's largest economy had tripled in 2022 to 502 trillion rupiah ($34 billion) from its original budget, pushed by rising global prices of oil and a depreciating rupiah currency.

Finance Minister Sri Mulyani Indrawati said more money would still be needed despite the fuel price hike, the amount depending on international crude prices.

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"We are monitoring the impact (of the measure) on inflation and economic growth," Sri Mulyani said, adding that the government would provide cash handouts for the poor to cushion the blow.

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%.

Bank Indonesia Governor Perry Warjiyo said last month monetary policymakers would re-assess the inflation outlook in response to the government's fuel price policy. The bank holds a two-day policy meeting ending on Sept. 22.

Fuel prices are a politically sensitive issue in Indonesia, and the changes will have major implications for households and small businesses, as subsidised fuel accounts for more than 80% of state-owned oil giant Pertamina's sales.

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The last fuel price hike was in 2014, months after Jokowi took office, aiming to free up fiscal space. That sparked protests across the archipelago.