Indonesian govt, business braced for fuel-price hike

Indonesian govt, business braced for fuel-price hike

President Joko “Jokowi” Widodo’s economic team is formulating strategies to ease the negative impact from an upcoming rise in fuel prices on business, as entrepreneurs also brace themselves for the long-awaited move.

Although the government has not provided details of the policy, Finance Minister Bambang Brodjonegoro has said the increase will come into effect before the end of this year.

In his presidential campaign, Jokowi vowed to reform the country’s burdensome and poorly targeted fuel subsidies, estimated to hit 276 trillion rupiah (US$22.7 billion) next year, eating up around 15 per cent of total state spending.

The huge fuel subsidies had created a “helpless” state budget and a gaping fiscal deficit at a time when the country needed to boost government spending in order to increase economic growth and people’s welfare, Vice President Jusuf Kalla said on Wednesday evening.

“We had planned to raise fuel prices early this month, but we’ve had to recalculate because of the recent fall in global oil prices. But, of course, we have to implement the policy soon,” he said.

On Oct 22, Bloomberg reported that the benchmark Brent crude oil price dropped 25 per cent from the previous four months, trading at $85.80 per barrel, significantly easing pressure on the government’s bill for fuel subsidies.

The price was significantly below the average price predicted by the government in the 2015 state budget, which sets the Indonesian crude price (ICP) at $105 per barrel. The ICP is traded not far from the price set for the benchmark Brent oil.

Despite the decline in global fuel prices, Energy and Mineral Resources Minister Sudirman Said said the government would go on with its plan to raise fuel prices this year, revealing that the announcement would likely be made as soon as President Jokowi returns from his official trip overseas.

Jokowi is expected to return to Indonesia after the G20 summit taking place in Brisbane on Nov 15 and 16.

Sudirman insisted that state-owned oil firm PT Pertamina would ensure sufficient fuel supplies despite reports that it was planning to limit distribution.

“We urge the public not to panic. [The rumors of limitation] are psychological; speculators are trying to benefit from the situation,” he said.

Separately, Industry Minister Saleh Husin said he was convinced that the increase in fuel prices would not widely affect small and medium enterprises (SMEs) or small industries, as they use industrial-purpose fuel rather than subsidised fuel.

However, he acknowledged that the increase would affect industry logistics costs, possibly causing around 4 per cent cost increases. “We will make sure officials talk with business associations about this issue.”

Indonesian Employers Association (Apindo) chairman Sofyan Wanandi said he was convinced that the president would announce the fuel-price hike soon after returning from overseas.

He said that employers would calculate the impact of the policy on the regional minimum wage (UMP). The association, however, is considering raising employees’ transportation allowances rather than supporting any wage increase.

According to Sofyan, the increase in fuel prices will not immediately affect the minimum wage because the impact of the inflation hike will only last for around three to six months.

“The minimum wage doesn’t need to increase following the increase in fuel prices, but employers will boost workers’ purchasing power by raising transportation allowances.”

Indonesian Chambers of Commerce and Industry (Kadin) chairman Suryo Bambang Sulisto echoed Sofyan’s opinion that the government should cut fuel subsidies immediately and reallocate the money to sectors that needed it the most.

Suryo also said that increases in fuel prices did not always correlate with rises in the regional minimum wage, which, he argued, had more to with workers’ productivity levels.

“The business world is not opposed to an increase in the minimum wage, but we have to be careful that raising it doesn’t backfire. We’re currently considered to be quite competitive in term of our minimum wage,” he said.

Permata Bank independent commissioner Tony Prasetiantono, said he had calculated that a fuel-price increase of 2,500 rupiah per liter would be sufficient for the government’s budget and would allow Bank Indonesia (BI) to maintain its current interest rate of 7.5 per cent.

He said BI would not have to increase the rate above its current level after the fuel-price hike in order to prevent liquidity from getting tighter.

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