Indonesian government warns of fuel price hike

Indonesians must prepare for a potential hike in fuel prices as the government looks to control its ballooning energy subsidies amid high global oil prices, a cabinet minister said on Friday.

Southeast Asia's largest economy has tripled this year's energy subsidy budget to 502 trillion rupiah ($34.22 billion) in order to keep some fuel prices and power tariffs unchanged and manage inflation.

However, this may not be enough, as nearly all of the subsidized fuel quota has already been used, according to the finance ministry.

Indonesia's Investment Minister Bahlil Lahadalia said if the government has to increase the quota for subsidized gasoline to 29 million kiloliters from 23 million kiloliters, and assuming oil prices stay elevated and the rupiah weak, the subsidy bill could rise to up to 600 trillion rupiah.

"Please convey to the people that my feeling is we have to get ready in case a fuel price hike happens," Bahlil told a news conference, noting that it was fiscally unwise to spend 25% of government revenues on subsidies.

"The burden on the state is high. Maybe this is momentum for us to work together to keep our fiscal (position) healthy," he added.

Indonesia's Finance Minister Sri Mulyani Indrawati on Thursday said she has asked state energy firm Pertamina to limit sales of subsidized fuels.

Economists have criticized the government's decision to increase subsidies this year, saying this would take money away from projects with bigger economic impacts.

Critics have also said a widening price disparity between subsidized and unsubsidized fuels has incentivized a shift in domestic consumption patterns and smuggling to neighboring countries, leading to increased sales of subsidized fuels.

A fuel price hike is sensitive in the world's fourth-most populous country and such a decision is usually taken by a head of government. Previous government moves to raise fuel prices have sparked street protests.

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