Edition 13: Changes to Fuel Subsidy on the Horizon
Changes to Fuel Subsidy on the Horizon
Source: Yoshi Canopus / Wikimedia
Disclaimer: We did our best to write in plain English but due to the specialist subject matter of economics, this post contains more jargon than usual. Take a look at our post on Value Added Tax for an introduction to Indonesian macroeconomics and an explanation of some of the terms we used in this article.
In the past week, various government figures have floated the idea of reducing state subsidies on fuel.
On Monday August 15, Energy and Mineral Resources Minister Arifin Tasrif was quoted in various media reports saying that state subsidies may be lowered in the coming months.
Coordinating Minister for Investment and Maritime Affairs Luhut Binsar Pandjaitan then confirmed on August 19 that the President was considering adjustments to the fuel subsidy and that this may take effect as early as the coming week.
The cost of standard fuel is currently Rp 7,650 per liter (around USD 0.52), which is around 40% below the estimated market price. Any decrease in fuel subsidies from the government will have the effect of increasing the price that consumers have to pay for fuel.
Economists, like Nailul Huda from the Institute for Development of Economics and Finance, fear that the fuel price hike will risk heightening inflation in an economy where prices have been steadily rising. Inflation rates in July reached a seven-year high of 4.94%.
If the government were to decrease fuel subsidies, this could result in an increased cost of production for business, thereby worsening inflationary pressures. This would then have the flow on effect of lowering purchasing power, which could then decrease household consumption levels and stunt economic growth.
However, President Joko Widodo said that “we need to find a balance between a healthy state budget and maintaining people’s purchasing power, which is not easy.”
This year, the energy subsidy budget has tripled to Rp 502 trillion (USD 33.84 billion) due to rising global energy prices and increased domestic energy demand. According to Jokowi, these levels of subsidies are unsustainable given the legislative requirement to control budget deficits.
The state budget deficit is currently at 3.92% of GDP. Meanwhile, legislation requires that the state maintain a budget deficit that is less than 3% of GDP.
Although this regulation was temporarily relaxed to allow for greater government spending for dealing with the pandemic, with Indonesia slowly reaching the “new normal”, the planned fuel subsidy adjustments can be seen as one part of the government’s plan to control the state budget and meet its legislative fiscal obligations.
On August 20, Coordinating Minister for Economic Affairs Airlangga Hartarto hosed down media speculation by saying that the fuel price hikes would not happen soon and that the government was still considering its options.
📧 Tell us what you think!
Should the government continue subsidizing fuel at current levels? Or are they justified in decreasing subsidies to control the state budget? Write down your opinions in our Pen Pal section!
What Is Up, Indonesia?
🌎 Politics & International Relations
Jokowi delivers annual State of the Nation address: On August 16, a day before independence day, the President delivered his annual speech to the People’s Consultative Assembly (MPR). In his speech, Jokowi covered themes such as the economy, infrastructure, the new capital city, international leadership, and social polarization.
Bali bomber to be released on parole: Umar Patek, who was sentenced to 20 years of jail in 2012 for his role in the 2002 Bali bombings received a reduced sentence and could be released early pending approval by the Ministry of Law and Human Rights. Victims, and the Australian Government, have called on the government to reverse its decision.
Putin and Xi confirm attendance at G20 Summit: The government confirmed that both President of Russia Vladimir Putin and President of China Xi Jinping will come to Bali for the G20 that will be held in November in the midst of heightened geopolitical tensions.
📈 Economics, Business & Technology
Trade Ministry mulls plans to establish a crypto exchange: Deputy Minister for Trade Jerry Sambuga said that his ministry was considering a cryptocurrency exchange that would be similar to the Indonesian Stock Exchange (IDX) to provide certainty and convenience for consumers.
Indonesia is considering imposing a tax on nickel exports: The world’s biggest exporter of nickel, a vital metal in battery production, President Jokowi announced that a levy on exports is being discussed. This comes as the government primes the country for electric vehicle manufacturing.
🏛️ Society & Culture
University rector arrested on corruption charges: Karomani, the Rector of the University of Lampung, has been arrested by the Corruption Eradication Commission (KPK) for taking bribes from students to secure an admission offer.
University in Makassar apologizes for discrimination against non-binary student: Hasanuddin University in Makassar has apologized after progressive netizens’ furor at a viral video showing faculty members kicking out a student from an event after they said they were “gender neutral”.
🌳 Science, Environment & Health
Indonesia announces first case of monkeypox: A 27 year old man who has recently returned from an unidentified country has been named as Indonesia’s first monkeypox patient. The government says it is cautious though not yet worried about further transmission of the virus.
What We're Reading
Nationalism and patriotism was on display across the country last week as citizens celebrated 77 years of Indonesian independence. However, is nationalism always good? What can happen when nationalism goes too far? This is discussed in a thought-provoking op-ed we chose to feature this week.
‘Toxic’ nationalism under scrutiny in Indonesia: “While the nation’s founding fathers were unmistakably “rationalists” in their nationalism, the modern characteristics of loyalty to the country had lost touch with sensibility, reasoning and definition. In turn, this opened more room for intolerance and a distorted lens of reality.” - Yvette Tanamal (The Jakarta Post)
Pen Pal
Q: What can we do to get involved in government's decision making process? I don't wanna sit around blindjabbed by another baffling permen kominfo. In the US they say call your senators... Here wat do? Yell in front of DPR?
A: Pray. And share anti-Kominfo memes on your Instagram story.
Jks hahaha...
This is something we’ve heard a lot from wuiboos. Whether it’s about Kominfo’s policy or any other issue you care about, here are some ways you can get your voice out there and participate in the democratic process.
Firstly, you can sign a petition - there are plenty online if you Google the specific issue that you’re interested in. Secondly, you can actually email your DPR Representative as well (politely). Information on your area and who your representative is can be found on the DPR website.
In our opinion though, the best way to go about things is by raising awareness. Tell your friends and family about the issue and why it’s important. Talk about it on your social media and in real life. The government so far has shown that they are sensitive to public fury so raising awareness is perhaps more powerful than you may think.
~ Editor-in-Chief Hirzi.
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Disclaimer: We are not professionals. We are prone to bias and error so please verify and double-check everything! We highly encourage you to do your own research.