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Glitter or gold? Indonesia's glowing economic outlook put to test after fuel price hikes
The move to slash fuel subsidies is an opportunity for the government to prove the glow of country's economy is not skin-deep.
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A worker at a state-owned company Pertamina petrol station changes the fuel prices displayed after the announcement of a fuel price hike, in Bekasi, West Java, on the outskirts of Jakarta, on Sept. 3. (Reuters/Ajeng Dinar Ulfiana)
T
he government finally bites the bullet. After months of hesitation to raise subsidized fuel prices to adjust to the rising global oil prices, President Joko “Jokowi” Widodo announced the increase on Saturday, the first time since the COVID-19 pandemic.
The Jokowi administration has been very protective of the economic-recovery momentum this year. The fuel subsidy has tripled in size, amounting to Rp 502 trillion (US$34 billion) or about 16 percent of the state budget, as the government maintained the prices until last month amid skyrocketing oil rates after Russia invaded Ukraine.
The commitment is well rewarded. The country has booked trade surplus and steady economic growth, making it look like Indonesia has attained a golden moment in macroeconomic policy.
Nevertheless, considering the global uncertainty due to supply chain disruptions during the pandemic and food and energy crisis stemming from the Russia-Ukraine war, the real test of the national economy’s resilience has only just begun. The strong macroeconomic figures may soon decline if the government fails to address the repercussions of higher inflation that will follow the fuel price hikes.
Riding on recovering domestic spending and export revenue, Indonesia recorded 5.44 percent in GDP growth in the second quarter of the year, the highest uptick in the last four quarters, while the annual inflation was recorded at 4.69 percent in August, among the lowest in the world.
Indonesia has also maintained a trade surplus for 27 consecutive months as of July, strengthening the rupiah position even after the United States Federal Reserves’ aggressive rate policy that has made the greenback invincible.
While other countries, especially advanced economies like the US and the European Union, are struggling to fight hyperinflation, Indonesia has received a glowing outlook, including from the International Monetary Fund and Asian Development Bank.
