JAKARTA Oct 30 – Indonesia’s new government will make changes to its costly gasoline and diesel subsidies before the end of the year, the country’s chief economics minister said on Thursday. Although a highly unpopular step, Indonesia’s new minority coalition government has to urgently address Indonesia’s biggest fiscal problem – a $23 billion fuel subsidy bill.
The subsidy regime is the main factor behind the budget and current account deficits weighing on Southeast Asia’s largest economy. An advisor to President Joko Widodo, who was sworn in on Oct. 20, told Reuters earlier this month that a fuel price hike of 3,000 rupiah was planned by the new government, possibly as early as Nov. 1.
“Policy correction will be done by the end of the year at the latest,” Sofyan Djalil said after a meeting of government ministers on Thursday. Djalil declined to go beyond his previous comments that the current subsidies were not reaching their intended target group. The trade ministry in Southeast Asia’s biggest economy would introduce policies to curb any rise in inflation, added finance minister Bambang Brodjonegoro.
He said that compensation would be provided for the sections of society hardest hit by any subsidy changes. Last year, gasoline prices were raised 44 percent, but the outgoing president, Susilo Bambang Yudhoyono, ducked ordering another hike this year despite a deteriorating fiscal position. Officials within Widodo’s government have said any money saved from reduced subsidies would be diverted to spending on infrastructure, agriculture, education, and health projects.