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Indonesia’s 2020 energy subsidy policy “flexible,” price freeze may stay
Indonesia’s 2020 policy on energy subsidies will be “flexible” and loosely based on global oil price moves, government officials told reporters on Tuesday, but an extension of the current policy to freeze fuel and power prices wasn’t ruled out.
President Joko Widodo ordered energy prices to be kept flat in 2018 and 2019 by hiking subsidies, which the government said was aimed at boosting domestic consumption though others criticised it as a populist move before a tough re-election campaign.
Widodo won the April election by a comfortable margin and is set to begin his second term in October. Some economists now expect the president to unfreeze prices to redirect subsidy spending to more productive use.
In Widodo’s 2020 budget proposals, submitted to parliament on Friday, the government requested a cut in diesel subsidies to 1,000 rupiah ($0.0701) a litre, from 2,000 rupiah a litre this year.
The proposals, which need parliamentary approval, allotted 137.5 trillion rupiah of subsidies for diesel, liquified petroleum gas, and electricity in 2020, down slightly from this year’s 142.6 trillion rupiah.
However, Finance Minister Sri Mulyani Indrawati said the budget plan didn’t mean the government will allow energy prices to freely float in line with market moves in 2020.
Next year’s proposal on subsidies was calculated assuming a certain volume of fuel consumption and factors affecting prices, like the rupiah exchange rate to the dollar and global oil prices, she told reporters after attending a parliamentary hearing.
“In reality, other than volume, from the price side there could be dynamics that do not follow our assumptions,” Indrawati said.
“What we did in 2018, we focused on stabilisation, that’s why our subsidy policy followed that direction. In 2020, we will see the dynamics and we will decide how we want to face them,” she added.
Askolani, director-general of budgeting at the finance ministry, said the government’s position for 2020 subsidies was “flexible”.
“If there is a fluctuation in crude prices, subsidies could be increased or the other way around,” he said.
The government proposal assumes the rupiah exchange rate will average at 14,400 a dollar in 2020 and Indonesian crude price will average at $65 a dollar.
In 2018, Southeast Asia’s largest economy spent 153.5 trillion rupiah for energy subsidies, up more than 60% from the original budget, to fund the populist measure.
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