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Fuel subsidy still needed as recession lurking: Indef

Tempo - July 14, 2022

Muhammad Hendartyo, Jakarta – The Institution for Development of Economics and Finance (Indef) researcher Nailul Huda assessed that the fuel subsidy policy is still needed because it could save Indonesia from recession.

"Fuel subsidy policy is still necessary to contain inflation. If the fuel prices are not restrained with subsidies, Indonesia's inflation will skyrocket," Nailul said to Tempo on Thursday, July 14, 2022.

Nailul explained that the threat of recession faced by the country is generated by global and domestic inflations that have increased significantly. When compared to Thailand, Myanmar, and Singapore, Indonesia's inflation rate is relatively low.

The inflation rate in Thailand and Malaysia are respectively 7.66 percent and 2.8 percent, while Indonesia's inflation rate sits at only 4.35 percent. "Both Malaysia and Indonesia have fuel subsidies for the needs of the community. So the inflation rates in Indonesia and Malaysia are relatively low," said Nailul.

Finance Minister Sri Mulyani Indrawati previously highlighted the potential for a recession because Indonesia is ranked 14th out of 15 Asian countries that are likely to experience an economic recession, based on the latest Bloomberg survey.

"We will stay vigilant," said Sri at a press conference for the sideline event of G20 in Nusa Dua, Bali, Wednesday, July 13, 2022.

Sri emphasized that all policy instruments would be used, including fiscal, monetary, financial sector policies, and other regulations to monitor the possibility of a recession.

In the Bloomberg survey, Indonesia is ranked 14th with a recession probability of three percent, far from Sri Lanka which occupies the first position with a recession potential of 85 percent, followed by New Zealand (33 percent), South Korea (25 percent), Japan (25 percent), and China (20 percent).

Source: https://en.tempo.co/read/1612052/fuel-subsidy-still-needed-as-recession-lurking-inde