(WSJ) Reallocate Subsidy is a "Solid Sign of Reform"

12/12/2018

Economists have welcomed President Joko Widodo’s move to increase the price of subsidized fuel by roughly a third, calling it a sign of his reform-minded leadership.

DBS economist Gundy Cahyadi referred to it as a “positive signal of the government’s commitment to push for tough economic reforms” in Southeast Asia’s largest economy. OCBC economist Wellian Wiranto called it “a good balance” between playing safe and acting decisively.

“If the market puts it in the context that [Mr. Widodo] is doing this just one month into his presidency – whereas others before him have delayed and procrastinated for years – then it’s a good sign for things to come,” Mr. Wiranto added.

President Joko Widodo raised subsidized fuel prices by 2,000 rupiah, putting gasoline at 8,500 rupiah a liter and diesel fuel at 7,500 rupiah a liter, less than some economists had hoped for a few months ago. But analysts say the market will still shine favorably on a key reform.

“The market has somewhat expected the lower increase as global oil prices have fallen,” said Standard Chartered economist Eric Sugandi. “The market will respond positively still because it shows [Mr. Widodo] is doing what he promised to do.”

Mr. Cahyadi of DBS estimates the gap in prices between the country’s subsidized and non-subsidized fuels will now be around 10-15%, the lowest level since late-2008.

Economists said the move will give the government around $8-$10 billion for other spending next year, which Mr. Widodo has said will go toward improving health care, education and infrastructure in the world’s fourth-most populous country.

Bank Indonesia is expected to meet later today, with economist anticipating a rise in its benchmark policy rates to help mitigate inflation. Aldian Taloputra, chief economist for Mandiri Sekuritas, said prices are likely rise to 7.5% year-on-year by the end of 2014. The finance minister said Monday night that inflationary pressures would last three months.

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(WSJ) Reallocate Subsidy is a "Solid Sign of Reform"