Sunday, December 3, 2023

Government’s Plan to Increase Fuel Prices, Inflation threat still waiting

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Maritime Affairs and Investment Coordinating Minister Luhut Binsar Pandjaitan, in a virtual public lecture at Hasanuddin University on Friday, said that next week President Jokowi would announce the decision on whether the government will increase the prices of subsidized fuel types of Pertalite and Solar. He said the option to increase the fuel price is needed because the fuel price in Indonesia is below its economic price due to the subsidy by the government. On the other hand, world oil prices have increased.

Minister Luhut in a written statement on Sunday said the government was still drafting a price adjustment scheme to reduce the burden of subsidies and compensation for fuel oil in the state budget. He said that changes in energy subsidy and compensation policies will later need to take into account several factors such as the inflation rate, fiscal conditions, and economic recovery.

Economic Affairs Coordinating Minister Airlangga Hartarto said the government has prepared several alternative schemes regarding the plan to increase the fuel price, which his team will report to President Jokowi in the near future. Minister Airlangga said the policy announcement will come after the government decides which alternative scheme is chosen.

Meanwhile, Economic Affairs Coordinating Minister Airlangga Hartarto said the government is still reviewing several scenarios related to fuel subsidies, without giving more details.

House Commission VII Chair Sugeng Suparwoto rebuked Maritime Affairs and Investment Coordinating Minister Luhut Binsar Pandjaitan for saying the government would raise the price of subsidized Pertalite-type fuel oil this week. Sugeng said Luhut’s statement prompted an increase in public consumption of subsidized fuel.

He said the recent surge in consumption has had an impact on the House Energy Commission’s failure to forecast additional Pertalite and Solar-type quotas proposed for the second half of this year, resulting in Pertalite shortages in several regions. Sugeng also said Luhut’s statement could increase the budget burden for energy subsidy to IDR700 trillion from the initial allocation of around IDR600 trillion set later this year.

Center of Reform on Economics (CORE) senior economist Pieter Abdullah Redjalam said on Tuesday he supports Indonesia’s plan to import oil from Russia from an economic standpoint because the price is 30 percent lower than the international market and Indonesia itself is an importer country.

However, he said Indonesia must consider other factors, particularly in relation to the United States. He said the United States could seek ways to embargo Indonesia if it truly imports crude oil from Russia.

Indonesia’s central bank raised its benchmark interest rate for the first time nearly in four years amid concerns over rising inflation due to the war in Ukraine and aggressive tightening by the U.S. Federal Reserve and neighboring central banks.

Bank Indonesia hiked its seven-day reverse repurchase rate to 3.75% from 3.5% — its first increase since November 2018, when the benchmark stood at 6%, surprising many analysts.

In a poll conducted by Reuters, 16 of 27 economists, or nearly 60%, said the central bank would keep the rate at 3.5%; the rest expected a hike of 25 basis points.

President Jokowi said the government must be careful in deciding the plan to increase the price of subsidized Pertalite-type fuel because it will have an impact on the community. Ideally, Jokowi said the increase in fuel price should not affect purchasing power, rising inflation, and economic growth.

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