Indonesian president plans fuel price hike

President-elect Joko Widodo (R)  meets with Prabowo Subianto. Picture: Reuters

President-elect Joko Widodo (R) meets with Prabowo Subianto. Picture: Reuters

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INDONESIA’S president-elect Joko Widodo plans to order the steepest rise in subsidised fuel prices in nine years soon after he takes over the reins of South-east Asia’s largest economy, an adviser said yesterday.

The new minority coalition government will be taking an unpopular step as Mr Widodo, due to be sworn in on Monday, has to urgently address Indonesia’s biggest fiscal problem – a $23 billion fuel subsidy bill.

Worries over political gridlock were eased after a meeting yesterday between Mr Widodo and opposition leader Prabowo Subianto, who for the first time offered congratulations to the incoming president.

Mr Widodo proposes to raise the price of gasoline by 46 per cent and diesel by 55 per cent in a move that will save the government $13bn next year, the adviser said.

Last year, gasoline prices were raised 44 per cent, but the outgoing president, Susilo Bambang Yudhoyono, ducked ordering a further hike this year despite a deteriorating fiscal position.

Mr Widodo will need support for future decisions and has sought to mend ties with Mr Subianto and other opposition parties after a disputed election that was the closest in Indonesia’s history.

The meeting with Mr Subianto yesterday appeared to ease tensions, though it was unclear whether fuel prices were on the agenda.

Mr Subianto, a former general, congratulated Mr Widodo and saluted him.

“I conveyed that the party I lead, my supporters, I will ask them to support Joko Widodo and the government he will lead,” he said.

“When there are things that we judge to not be for the benefit of the people… we will not hesitate to criticise.”

The prospect of a fuel price hike to bring down a worrying fiscal deficit and Mr Subianto’s words gave heart to investors in Indonesian assets. The stock market closed up 1.6 per cent. The rupiah currency had its best day in three months, rising almost 1 per cent, while ten-year government bond yields eased.

The government is expected to save 156 trillion rupiah ($12.76bn) next year in fuel subsidy costs, the adviser said. Mr Widodo has said the money saved would be spent on agriculture, education, and health.

To offset higher prices, he plans to provide the poorest families with 300,000 rupiah per quarter until the first quarter of 2016, the adviser said.

The 2014 deficit had been targeted at 2.4 per cent of gross domestic product, but it is in danger of busting a budget law setting the limit at 3 per cent because of a shortfall in tax revenues and the slowest economic growth in five years.

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