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Lawmakers in Indonesia are thinking about raising fuel prices by as much as 40%

Image: Reuters Berita 24 English - Indonesia may raise the prices of subsidised fuel by 30% to 40%, lawmakers from President Joko Widodo'...

Image: Reuters

Berita 24 English - Indonesia may raise the prices of subsidised fuel by 30% to 40%, lawmakers from President Joko Widodo's ruling coalition government told Reuters on Friday. This would help the country deal with the pressure on its finances caused by a growing subsidy budget.

Eddy Soeparno, a member of the National Mandate Party and deputy head of the parliament's energy committee, said he got the information from a meeting with the state oil company Pertamina that was held behind closed doors earlier this week.

Due to rising oil prices and a weakening rupiah, Southeast Asia's largest economy has already tripled the amount of money it planned to spend on energy subsidies in 2022. It now plans to spend 502 trillion rupiah ($33.90 billion), which is about 16% of its total spending plans.

If fuel prices don't go up this year, the government says they will need even more money for subsidies.

Pertamina chose to raise the prices of 90-octane gasoline to 10,000 rupiah per litre from 7,650 rupiah, 92-octane gasoline to 16,000 rupiah per litre from 12,500 rupiah, and diesel to 7,200 rupiah per litre from 5,150 rupiah, Eddy said in an interview on Friday.

He also said that Pertamina was in favour of putting some limits on sales, such as stopping people with bigger engines from buying subsidised fuels.

"We think this (raising prices and putting limits on sales) will hurt the people the least," Eddy said.

Eddy said that the price hike is likely to add about 1.9 percentage points to the inflation rate in 2022.

Indonesia's inflation rate hit 4.94 percent in July, which is the highest it has been in seven years. However, it is still much lower than rates in more developed countries, mostly because of fuel subsidies.

In a phone interview, Sugeng Suparwoto, who is in charge of the energy committee in parliament, confirmed what was said at the Pertamina meeting.

"We want to keep inflation at 7% until the end of the year," he said. He also said that cash handouts would be given to help Indonesia's poor deal with any rises in fuel prices that hurt their ability to buy things.

Irto Ginting, the corporate secretary of Pertamina's retail distribution unit, wouldn't say anything about the proposed price increases. He did say, however, that the government is in charge of pricing decisions.

When asked for comments, officials from the energy and economic ministries and the presidential palace did not respond right away.

Airlangga Hartarto, who is in charge of the economy, said earlier this week that he would show all policy options to Jokowi, which is what most people call the Indonesian president.

Due to Indonesia's low inflation, the central bank has been able to wait until this week to raise interest rates, which is much later than its regional and global peers.

Some economists said that Bank Indonesia's 25-bp rate hike, which was its first since 2018 and came before the fuel price increase, was a way to get ahead of the news.

Eddy said that setting the price of 90-octane gasoline, Indonesia's most popular fuel, at 9,500 rupiah per litre and the prices of the other fuels below Pertamina's preferred price points are also being thought about as ways to raise prices.

The price levels being considered are still less than what the energy ministry said the cost of making fuel at a refinery was before, which suggests that there are some subsidies.

($1 = 14,810.0000 rupiah)

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