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Indonesia focuses on debt, subsidy control amid global inflation crisis
Deputy Finance Minister Suahasil Nazara recently spoke with The Jakarta Post to discuss the country’s macroeconomic situation and state budget strategies to cushion the impact of the global inflation crisis.
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Deputy Finance Minister Suahasil Nazara talks to The Jakarta Post’s journalists about Indonesia’s macroeconomic situation and government’s fiscal strategies to shield the country from global inflation crisis on June 2, 2022 at the ministry’s office in Central Jakarta. (Courtesy of Finance Ministry/-)
T
em>The war between Russia and Ukraine has significantly increased energy and food prices, derailing global economic recovery from the COVID-19 pandemic. Indonesia has felt the pinch of rising inflation and relied on revenue from commodities to keep its economy afloat. Deputy Finance Minister Suahasil Nazara recently spoke with The Jakarta Post's Fadhil Haidar Sulaeman, Norman Harsono and Adisti Sukma Sawitri to discuss the country’s macroeconomic situation and state budget strategies to cushion the impact of the global inflation crisis. The following are excerpts from the interview.
Question: The Finance Ministry has declared that the state budget would be modified to act as a “shock absorber” for skyrocketing global commodity prices. To what extent will the government subsidize energy prices?
Answer: The current phenomenon is that the Indonesian crude price (ICP) has increased [as a result of increasing crude oil prices globally]. In other areas such as the United States and Europe, there has been a pass-through policy of price increases to the local economy. If the same thing happens in Indonesia, the price of Pertalite and Pertamax will rise. In fact, the price of Pertamax should have become the price of the Shell, which has risen to Rp 17,000 (US$1.17).
However, the government believes that the economic recovery must continue, and thus we decided to suppress energy prices first. The price of electricity and subsidized fuel has not increased, but due to our imports on some energy commodities, such as oil, we increased the budget for subsidies and compensation for energy.
Thus, until December this year, the energy compensation and subsidy rose to Rp 443 trillion due to the increased ICP from $63 to $100 per barrel. This proposal has been approved by the House of Representatives. For next year, subsidies and compensation will still accommodate the fluctuation in the ICP price range, which in the government's macroeconomic projection and draft fiscal policy (KEM PPKF) 2023 document ranges from $80 to $100 per barrel.
However, we will continue to implement efficiency policies, such as the plan to adjust electricity rates that use 3,500 volt-ampere (VA) power and above. The government is still looking for the right timing and price, so as to implement budget reforms while maintaining the people’s wellbeing.
