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Indonesia's Plan to Keep Power Tariffs Flat Will Cost $588m This Year

Jakarta Globe | March 13, 2018
 The Islamic Chamber of Commerce , Industry and Agriculture (ICCIA)

Indonesia's plans to keep electricity tariffs and some fuel prices unchanged for the next two years will cost around Rp 8.1 trillion ($588 million) in additional subsidies this year alone, Ministry of Finance officials said on Monday (12/03).

The plans, which are slated to be discussed at the House of Representatives, were announced last week as a measure to increase middle class purchasing power.

Southeast Asia's largest economy grew 5.07 percent in 2017, Indonesia's best pace in four years, but consumption - the biggest contributor to the economy - remained sluggish at around 5 percent versus a pre-financial crisis era rise of 6 percent.

Finance Minister Sri Mulyani Indrawati said the measure is needed to maintain a low inflation rate, since average oil prices are expected to be higher than initially anticipated this year, while the rupiah exchange rate will likely be weaker.

"We are mitigating the risks to inflation and to the balance sheets of companies through a number of regulations," Sri Mulyani told reporters.

The rupiah is forecast to be traded at 13,500 compared to the dollar on average in 2018, compared to the government's initial forecast of 13,400, the minister said, adding that crude oil price is expected to be priced at $55-$60 a barrel, compared to initial projections of $48 a barrel.

Askolani, director general of budgeting at the ministry, said the 2018 budget deficit is still 2.19 percent of gross domestic product, despite an increase in subsidies, as oil and gas-related revenue will also rise.

Indonesia's annual inflation rate in February was 3.18 percent, the lowest since December 2016. The central bank is targeting inflation of 2.5-4.5 percent for 2018.