Indonesia’s plan to keep power tariffs flat will cost USD588mn a year

  • Indonesia’s plans to keep electricity tariffs and some fuel prices unchanged for the next two years will cost around IDR8.1tr in additional subsidies in 2018 alone, Ministry of Finance officials said.
  • 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.
  • Indonesia’s economy grew 5.07% in 2017, Indonesia’s best pace in four years, but consumption – the biggest contributor to the economy – remained sluggish at around 5% versus a pre-financial crisis era rise of 6%.
  • 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.
  • 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 USD55-60 a barrel, compared to initial projections of USD48 a barrel.
  • Indonesia’s annual inflation rate in February was 3.18%, the lowest since Dec 16. The central bank is targeting inflation of 2.5-4.5% for 2018.

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