Global oil price surges resulting from geopolitical conflict have the\npotential to significantly increase pressure on Indonesia\u2019s state budget\n(APBN). Under the worst-case scenario, the burden of energy subsidies\ncould balloon to nearly Rp280 trillion.<\/p>\n
M. Rizal Taufikurahman, Head of the Macroeconomics and Finance Centre\nat the Institute for Development of Economics and Finance (Indef),\nbelieves that the longer the conflict between the United States, Israel,\nand Iran persists, the greater the pressure on Indonesia\u2019s APBN will\nbecome.<\/p>\n
\u201cThe longer the conflict intensity worsens, the more our APBN will\nhave to spend money on domestic needs,\u201d he stated during an online\npublic discussion titled \u201cTurbulent Geopolitics, Volatile Oil Prices\u201d on\nSunday (15 March).<\/p>\n
Rizal explained that without anticipatory policy measures from the\ngovernment, the burden of energy subsidies under almost all scenarios\nwill increase sharply. Under a mild scenario, Indonesia\u2019s government\nenergy subsidies could swell to Rp215.3 trillion.<\/p>\n
He outlined how geopolitical turmoil affects the Indonesian economy\nthrough several transmission channels. First, surging import energy\nprices. Second, weakening logistics and distribution sectors that can\ncause supply disruptions. These conditions could ultimately suppress\ninvestment and trigger cost-push inflation.<\/p>\n
According to Indef\u2019s calculations, each additional US$1 per barrel of\noil translates to an additional energy subsidy burden of Rp2.54\ntrillion.<\/p>\n
\u201cIf there is a surge of US$10 per barrel of oil, it will eliminate\nmore than Rp25 trillion of fiscal space and further narrow the APBN,\u201d\nRizal explained.<\/p>\n
However, without anticipatory measures, the fiscal burden that the\ngovernment must bear will be considerably larger.<\/p>\n
\u201cIf no anticipatory policy is implemented, then it becomes even\nlarger. So for every US$1 per barrel increase, the subsidy burden will\nincrease further to Rp5.3 trillion,\u201d he said.<\/p>\n
For this reason, Rizal believes the government must urgently prepare\nanticipatory policies to prevent geopolitical conflict from shaking the\ndomestic economy. He proposes two main policies that the government can\nimplement.<\/p>\n
The first is a reduction in fuel excise taxes, so that part of the\nenergy price increase can be borne by the government. The second is\nensuring that the impact of rising energy prices is not entirely passed\non to society.<\/p>\n
\u201cIf it is passed on to the public, I believe that in the current\neconomic situation and given the public\u2019s purchasing power, that is the\nheaviest option for our economy,\u201d he stated.<\/p>\n
He added that a policy of raising fuel prices has the potential to\ntrigger higher inflation. Even in February, inflation was already\nrecorded above 4%. This condition risks disrupting economic stability at\nboth the micro and macro levels, which could ultimately impact social\nstability.<\/p>\n
Another anticipatory step the government must prepare is to design\ncash transfer schemes and fiscal subsidies to mitigate the impact of\nexternal shocks on public purchasing power.<\/p>\n
Rizal believes this policy is important to maintain, especially given\nthe fiscal condition that currently records a deficit of around\n2.92%.<\/p>\n
\u201cThat is what I believe must be safeguarded. The deficit is now at\n2.92%, and there will certainly be additional subsidies, especially\nenergy subsidies, including the total subsidy impact,\u201d he stated.<\/p>\n
According to him, such interventions must be carefully designed so\nthat pressure from external factors does not directly hit public\npurchasing power.<\/p>\n
Rizal emphasised that public purchasing power must be maintained\nbecause household consumption is the main pillar of the national\neconomy. He noted that consumption\u2019s contribution to gross domestic\nproduct (GDP) reaches approximately 53%.<\/p>\n
\u201cThese two anticipatory policies are what can be considered,\u201d he\nsaid.<\/p>\n
Based on simulations conducted, without anticipatory policies,\nIndonesia\u2019s GDP growth could decline by up to 0.12%. However, if both\npolicies are implemented simultaneously, their impact on GDP is\nrelatively smaller.<\/p>\n
\u201cSo if, for example, there are no anticipatory measures, no two\npolicies working together, then our GDP will fall by 0.12%. This means\nit would be quite heavy for Indonesia to allow or accept without active\nanticipatory policies,\u201d he stated.<\/p>\n
He explained that if shock-dampening policies are implemented, the\nshort-term impact on GDP is only around 0.02% in the first one to two\nmonths. Even in heavier scenarios, the decline can still be contained at\naround 0.04%.<\/p>\n
\u201cThis means it is relatively small without anticipatory policy. This\nis why anticipatory policy, which importantly does not pass on energy\nprice increases to households, is essential,\u201d he added.<\/p>\n
The threat of geopolitical conflict also has the potential to drive\nup domestic inflation. This occurs because geopolitical conflict\ngenerally triggers increases in production costs that are subsequently\npassed on to goods prices.<\/p>\n
\u201cWithout anticipatory policy, inflation will rise by 0.881%,\u201d he\nstated.<\/p>\n
Rizal warned that the consumption decline will be heavier because\nhousehold consumption trends have already weakened over recent years. If\npressure continues through 2026, this condition could further suppress\nnational economic growth.<\/p>\n
He stressed that Indonesia, as an energy-importing nation, is highly\nvulnerable to fluctuations in global oil prices, especially when\ngeopolitical conflict triggers price volatility in international\nmarkets.<\/p>\n
\u201cIndonesia is affected and will certainly suffer considerable impact\nif not properly anticipated,\u201d he said.<\/p>\n
For this reason, he believes the government must prepare policy\nsafeguards through two main steps: stabilising energy prices and\nproviding cash assistance, so that external shocks do not directly hit\npublic purchasing power and national economic stability.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/energy-subsidies-potentially-swell-to-rp280-trillion-due-to-oil-price-surge-1773564886", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }