Indonesia raised domestic fuel prices for the first time since 2008 to cut subsidy costs and boost confidence in the nation’s currency in the face of protest rallies.
The price of subsidized gasoline will be increased by 44 percent to 6,500 rupiah ($0.65) a liter, while diesel will now be 22 percent higher at 5,500 rupiah a liter, Energy and Mineral Resources Minister Jero Wacik said yesterday in a press briefing in Jakarta.
The changes are effective today.Protests erupted across Indonesia this week as President Susilo Bambang Yudhoyono’s administration progressed with plans to increase prices, in a country where riots spurred by soaring living costs helped oust dictator Suharto in 1998.
Curbing energy subsidies could reduce demand for oil imports, which have led to trade and current-account deficits and contributed to the rupiah being one of the worst performing currencies in Asia in the past year.
“We need to take steps to boost our economy,” Coordinating Minister for the Economy Hatta Rajasa said at the briefing.
“In line with the revised state budget, the government is taking the step of adjusting fuel prices, realizing that this will affect inflation and people’s purchasing power.”
The fuel-price increase will strengthen the rupiah and the trade balance as petroleum imports fall, while removing the incentive for smugglers to sell subsidized fuel abroad, Finance Minister Chatib Basri said in an interview June 19.
Indonesia, an energy producer, is a net importer of oil and until December 2008 was Asia’s only member of the Organization of Petroleum Exporting Countries.
Populous Nation
Subsidized gasoline and diesel were previously set at 4,500 rupiah a liter. The world’s fourth-most populous nation last increased fuel prices on May 24, 2008. Indonesia also raised prices twice in 2005, according to Basri.
The rupiah declined for a sixth week as of yesterday, losing 0.6 percent to 9,930 per dollar, prices from local banks compiled by Bloomberg show.
It traded at a 4 percent premium to one-month non-deliverable forwards, which slid 2.8 percent to 10,345, data compiled by Bloomberg show. Indonesian policy makers have struggled to contain the rupiah’s decline, with the country’s currency reserves dropping as the central bank sold dollars.
Yudhoyono had put off raising fuel prices since protests derailed a planned increase last year. There were demonstrations this week as lawmakers voted in favor of a compensation program that the president made a precondition for raising fuel prices.
Rating Cut
Standard & Poor’s cut its rating outlook on Indonesia’s debt to stable from positive in May, saying a stalling of reform momentum and a weaker external profile had reduced the chance of an upgrade over the next 12 months.
The government estimates that energy subsidies would have ballooned to $30 billion this year if left unchanged, eating up funds that could instead be spent on benefits for the poor or infrastructure projects. Policy makers allocated 27.9 trillion rupiah in compensation in the revised 2013 budget approved by Parliament June 17.
“The retail fuel price hike definitely represents a step in the right direction from a reform perspective,” Deyi Tan, a Singapore-based economist at Morgan Stanley, wrote in a June 18 report after Parliament approved the revised budget.
“However, it will come with the short-term pain of higher inflation and higher policy rates.” The government is in an early stage of studying a new fuel subsidy system, Minister Basri said yesterday.
Among the options being considered is to peg the subsidies at a certain amount above which fuel prices will follow an index, he said, without elaborating.
Another option would be to make monthly price adjustments, he said. Consumer prices rose 5.47 percent in May, with the pace of gains slowing for a second month.
The government predicts inflation will quicken to 7.2 percent this year from an initial estimate of 4.9 percent as a result of higher fuel prices.
bloomberg.com
The price of subsidized gasoline will be increased by 44 percent to 6,500 rupiah ($0.65) a liter, while diesel will now be 22 percent higher at 5,500 rupiah a liter, Energy and Mineral Resources Minister Jero Wacik said yesterday in a press briefing in Jakarta.
The changes are effective today.Protests erupted across Indonesia this week as President Susilo Bambang Yudhoyono’s administration progressed with plans to increase prices, in a country where riots spurred by soaring living costs helped oust dictator Suharto in 1998.
Curbing energy subsidies could reduce demand for oil imports, which have led to trade and current-account deficits and contributed to the rupiah being one of the worst performing currencies in Asia in the past year.
“We need to take steps to boost our economy,” Coordinating Minister for the Economy Hatta Rajasa said at the briefing.
“In line with the revised state budget, the government is taking the step of adjusting fuel prices, realizing that this will affect inflation and people’s purchasing power.”
The fuel-price increase will strengthen the rupiah and the trade balance as petroleum imports fall, while removing the incentive for smugglers to sell subsidized fuel abroad, Finance Minister Chatib Basri said in an interview June 19.
Indonesia, an energy producer, is a net importer of oil and until December 2008 was Asia’s only member of the Organization of Petroleum Exporting Countries.
Populous Nation
Subsidized gasoline and diesel were previously set at 4,500 rupiah a liter. The world’s fourth-most populous nation last increased fuel prices on May 24, 2008. Indonesia also raised prices twice in 2005, according to Basri.
The rupiah declined for a sixth week as of yesterday, losing 0.6 percent to 9,930 per dollar, prices from local banks compiled by Bloomberg show.
It traded at a 4 percent premium to one-month non-deliverable forwards, which slid 2.8 percent to 10,345, data compiled by Bloomberg show. Indonesian policy makers have struggled to contain the rupiah’s decline, with the country’s currency reserves dropping as the central bank sold dollars.
Yudhoyono had put off raising fuel prices since protests derailed a planned increase last year. There were demonstrations this week as lawmakers voted in favor of a compensation program that the president made a precondition for raising fuel prices.
Rating Cut
Standard & Poor’s cut its rating outlook on Indonesia’s debt to stable from positive in May, saying a stalling of reform momentum and a weaker external profile had reduced the chance of an upgrade over the next 12 months.
The government estimates that energy subsidies would have ballooned to $30 billion this year if left unchanged, eating up funds that could instead be spent on benefits for the poor or infrastructure projects. Policy makers allocated 27.9 trillion rupiah in compensation in the revised 2013 budget approved by Parliament June 17.
“The retail fuel price hike definitely represents a step in the right direction from a reform perspective,” Deyi Tan, a Singapore-based economist at Morgan Stanley, wrote in a June 18 report after Parliament approved the revised budget.
“However, it will come with the short-term pain of higher inflation and higher policy rates.” The government is in an early stage of studying a new fuel subsidy system, Minister Basri said yesterday.
Among the options being considered is to peg the subsidies at a certain amount above which fuel prices will follow an index, he said, without elaborating.
Another option would be to make monthly price adjustments, he said. Consumer prices rose 5.47 percent in May, with the pace of gains slowing for a second month.
The government predicts inflation will quicken to 7.2 percent this year from an initial estimate of 4.9 percent as a result of higher fuel prices.
bloomberg.com
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