Economist Calls Decision to Hold Subsidised Fuel Prices a Policy Adjustment Delay
Head of the Macroeconomic and Finance Centre at the Institute for Development of Economics and Finance (Indef), M Rizal Taufikurahman, stated that in the short term, the decision to hold subsidised fuel (BBM) prices amid assumptions of oil at US$100 per barrel appears populist and protects purchasing power. However, he added, if examined more deeply, this is a form of policy adjustment delay that transfers pressure from society to the fiscal realm.
“With the state budget (APBN) highly sensitive to oil prices, where every US$1 increase can add a subsidy burden of tens of trillions of rupiah, fiscal space will quickly erode,” Rizal said when contacted on Monday (6/4).
The use of the excess budget balance (SAL) of Rp420 trillion as a cushion also needs to be criticised. According to Rizal, SAL is essentially a buffer for emergency conditions, not a structural financing instrument.
On the other hand, the narrative that the deficit can be kept around 2.9% through efficiencies needs to be tested more realistically. Rizal believes that budget savings in practice often do not target unproductive spending, but instead cut development expenditure with high multipliers.
“This risks creating an illusion of fiscal stability on paper, but sacrificing medium-term economic growth. In other words, this policy is not without risks because it shifts the burden from energy prices to the quality of the APBN,” he explained.
Meanwhile, the government has reaffirmed that it will not raise the prices of subsidised fuels. Finance Minister Purbaya Yudhi Sadewa stated that they have tested the budget’s resilience with global oil prices averaging US$100 per barrel until the end of the year.
With cuts and savings here and there, he said, the government ensures the APBN deficit can be maintained around 2.9%.
“So I want to reaffirm that subsidised BBM prices will not rise until the end of the year and my budget is sufficient. What if it’s tight? For example, if prices are higher, out of control. As long as the supply is there, we still have a Rp420 trillion cash buffer in the form of excess budget balance or SAL. If it’s tight, that can still be used,” Purbaya explained during a press conference in Jakarta on Monday (6/4).
“But I think we’re still far from that because the chances of oil prices staying above US$100 for a prolonged period are small if we look at the politics in the United States,” he said.
He also asked the public not to worry and speculate that the government might run out of budget.
“Even so, we have plenty of money, we’re rich. So our money is sufficient. Every policy given earlier certainly has cost consequences to us and we’ve calculated it, it’s enough,” he concluded.
The surge in global oil prices to US$100 per barrel is pressuring Indonesia’s APBN. Experts highlight the dilemma of subsidies, inflation, and potential economic slowdown.
Minister of Energy and Mineral Resources Bahlil Lahadalia assured that the government will not yet limit fuel subsidies or BBM and guarantees that stock availability remains safe amid global oil price volatility.
The subsidy programme also covers diesel fuel and heavy oil to help ease cost pressures for the business world.
Finance Minister Purbaya Yudhi Sadewa accused Pertamina of being lazy in building oil refineries, thus causing Indonesia to continue relying on BBM imports.
Finance Minister Purbaya Yudhi Sadewa ensured that subsidies for Pertalite, solar, and 3 kg LPG continue to be evaluated to be more on target.