Indonesia: Hike in Fuel Prices May Disrupt Economic Recovery: Economist

TEMPO.COJakarta – Indonesia’s economic recovery could be affected by the increase in subsidized fuel prices, Director of the Center of Economics and Law Studies (Celios) Bhima Yudhistira has argued.

He said this is because the price hike in Pertalite and Solar may lead to an increase in inflation. If the inflation rate is too high and labor absorption is disrupted, Indonesia can follow other countries and enter the stagflation phase. 

“As a result, the government’s economic recovery targets could be missed,” said Bhima to Tempo on Tuesday, August 23, 2022.

He explained that the fuel price hike will not only affect the poor but also the middle-class people because many of them have migrated from Pertamax (RON 92) to Pertalite (RON 90).

According to the State Budget data, the economist said the absorption of the energy subsidy has just reached Rp88.7 trillion from January to July 2022, while the State Budget sees a surplus of  Rp106.1 trillion or 0.57 percent of Gross Domestic Product or GDP in the July period.

This means Bhima argued that the government is also enjoying rising crude oil prices to boost state revenues. “Why the surplus is not prioritized for energy subsidies? There should not be indications that the government has no intention to significantly cut the budget that is not urgent and sacrifices energy subsidies,” he added.

Bhima also opined that the government could revise the rules to stop the leak of diesel subsidies enjoyed by large-scale industries. This way, the government can save the subsidy spending because 93 percent of the diesel consumed is the subsidy type or Solar.

“Regulate the leak of subsidized diesel in trucks transporting mining and palm products, instead of increasing prices of Pertalite and Solar,” Bhima underlined, adding that the government can also cut infrastructure spending.

“Please consider this carefully,” Bhima said. The government must think about the readiness of the poor in dealing with the hike in fuel prices after volatile food inflation almost touched 11 percent yoy in July 2022.


Source: https://en.tempo.co/read/1625816/hike-in-fuel-prices-may-disrupt-economic-recovery-economist