Indonesia to see higher Q3 growth even with fuel price hike, minister says

JAKARTA  – Indonesia’s economic growth this quarter is expected to be higher than the 5.44 percent in Q2, even with a potential fuel price hike, a senior cabinet minister said on Tuesday.

Southeast Asia’s biggest economy is considering raising prices of some fuels to rein in its ballooning energy subsidies budget, a move that would increase everyday costs for businesses and consumers and stoke inflation.

“We still see that GDP growth this quarter can be better than last quarter,” Luhut Pandjaitan told an economic seminar held by the Indonesian Employers Association (Apindo). He said higher private spending as the country recovers from the COVID-19 pandemic would still drive growth.

Amid expectation of imminent fuel price hike, Indonesia’s finance minister on Monday announced that the government will reallocate 24.1 trillion rupiah of its fuel subsidy budget to social spending.

Lawmakers from parliament’s energy committee last week told Reuters the government may raise fuel prices by 30 percent to 40 percent and that such a move will add 1.9 percentage points to the inflation rate this year.

Indonesians currently pay 7,650 rupiah per liter (about 51 U.S. cents) for its most popular gasoline product, which authorities say is about 40 percent below the estimated market price, while subsidized diesel is sold at 5,150 rupiah (about 35 U.S. cents) per liter, about a third of the market price.

At the same event on Tuesday, Industry Minister Agus Gumiwang Kartasasmita said he believed an adjustment in gasoline prices will not significantly impact production costs of middle- to large-sized industries, but he said a diesel fuel price hike may cause a 10 percent to 15 percent rise in the cost of some goods.

($1 = 14,860.0000 rupiah)