Jakarta. The government has been gearing up for fuel price increases in the coming days as it becomes increasingly apparent that the fuel subsidy cost would cause a blowout in this year's state budget.
On Tuesday, the Coordinating Minister for Maritime Affairs and Investment, Luhut Binsar Panjaitan, asked governors, mayors, and district heads across Indonesia to disseminate information about the price increase and the government's effort to cushion the effects to the public.
A day earlier, Finance Minister Sri Mulyani Indrawati announced Rp 24.17 trillion ($1.6 billion) in the additional budget for cash transfers for low-income families and public transport subsidies.
All those moves pointed to the imminent fuel price increases, which according to several sources, would be announced this week by President Joko "Jokowi" Widodo. A top minister in Jokowi's cabinet said the increase was only a matter of when.
"The fuel price will be increased after all the preparations have been completed," said Coordinating Minister for Economic Affairs Airlangga Hartarto at a public lecture at the S. Rajaratnam School of International Studies (RSIS), Singapore, Monday.
Finance Ministry calculated that the fuel subsidy cost could swell to Rp 689 trillion by the end of the year, up from the 2022 revised budget of Rp 502.9 trillion. In comparison, the government only set aside Rp 152.5 trillion in the original budget.
Today, for each liter or kilogram of fuels sold at fixed prices in Indonesia, the government has to spend Rp 4,800–14,250 in subsidies, the ministry data showed.
Airlangga said the current subsidy budget would not be able to cope with increasing people's mobility in Indonesia in line with the subsiding Covid-19 pandemic in the country. "So, we plan to adjust fuel prices and have launched a direct assistance program plan for the most affected people," he said.
Bank Permata Chief Economist Josua Pardede welcomed the government's plan to increase the fuel price and add social assistance budget for the poor.
"As a first step, the government can increase the price of Pertalite to a level of Rp 10,000 per liter to reduce the burden on the state budget and ensure this year's quota of subsidized fuel is sufficient," Joshua said, referring to the most popular of gasoline brand sold by the government energy company Pertamina.
Secondly, he said the government should consider fixing the subsidy amount for each liter or kilogram of fuel sold in the country instead of fixing the fuel prices.
"That way, the movement of world oil prices will not affect the subsidy budget in the state budget," Joshua said.
Still, he said, a more flexible social protection scheme must accompany that policy so that the state budget could react promptly to protect the most vulnerable population when global energy prices increase.