Deni Ghifari, Jakarta – The government says prices of subsidized gasoline and diesel will stay fixed even if global oil prices remain elevated, while airlines will be allowed to lift airfares, but without excessively hurting consumers.
Coordinating Economy Minister Airlangga Hartarto said in a press conference on Monday that, so long as oil did not average more than US$97 per barrel for the year, subsidized fuel prices "could stay in place until December" to "maintain economic stability and purchasing power".
The United States-Israeli war on Iran has sent the price of oil up sharply after Tehran blocked most maritime traffic through the Strait of Hormuz.
Brent crude traded near $108 per barrel on Monday afternoon, up sharply from about $60 – $70 before the first missile was fired on Feb. 28. Prices have remained volatile since the war began and well above the $70 per barrel assumption in Indonesia's state budget, forcing the government to spend more on subsidies than originally allocated.
Finance Minister Purbaya Yudhi Sadewa said the budget could shield consumers even if oil averaged $100 per barrel in 2026, noting cuts could be made to other expenditure items to spend more on fuel subsidies.
Airlangga said last week that the government had identified Rp 130 trillion ($7.63 billion) of potential savings but did not specify where spending may be slashed.
Dolfie Othniel Frederic Palit, deputy chair of House of Representatives Commission XI, which oversees financial affairs, said in a public hearing on Monday that an average oil price of $100 would add Rp 204 trillion to the state's subsidy bill, suggesting that, even with Rp 130 trillion in savings, a gap of Rp 74 trillion would remain.
Purbaya said in the House hearing that last year's cash surplus (SAL), which amounted to Rp 420 trillion, might be used to cover the ballooning subsidies. Using the rainy-day fund requires House approval.
However, Purbaya told reporters on Monday that his $100-per-barrel scenario would keep the fiscal deficit at 2.92 percent of gross domestic product, below the 3-percent legal cap and unchanged from the 2025 deficit, without touching the SAL or hiking fuel prices.
The minister did not detail how the government could achieve this, saying only that "we are ready on multiple levels [and] have cushions".
He argued that, with increasing oil prices, state revenue would also increase thanks to more tax revenue and royalties from oil and coal exports. Coal, one of Indonesia's main export commodities, has enjoyed a double-digit price jump since the war started.
Asked about potentially introducing windfall taxes on Indonesian export commodities, including crude palm oil, Purbaya implied that the Energy and Mineral Resources Ministry was looking into that.
Permata Bank chief economist Josua Pardede told The Jakarta Post on Monday that keeping the deficit at 2.9 percent of GDP with oil averaging $100, while not using SAL funds or hiking fuel prices, "was technically possible but very tight operationally".
He said tackling the subsidy burden required a multi-pronged approach comprising a wider budget deficit, increased state revenue, reallocated spending, and, "if needed", using the cash cushion.
Syafruddin Karimi, an economics professor at Andalas University, concurred, and added that spending cuts and maximizing revenue should come first, while recourse to the SAL would only be justified in the event of persistent energy shocks.
"This order is important, because the government has to maintain the credibility of the state budget, alongside holding back the interest rate burden, so it doesn't jump rapidly. [...] The state needs a more complete package of fiscal adjustment," Syafruddin told the Post on Monday.
Parachute for airlines
In the press conference, Airlangga also unveiled policies to help airlines, which are suffering under aviation fuel prices that have risen even more than oil prices since the Iran war began.
The government has raised the aviation fuel surcharge, which is charged to consumers to cover fuel costs, to 38 percent from the previous 10 percent for jet aircraft and 25 percent for propeller planes.
Transportation Minister Dudy Purwagandhi said the decision comes after talks with airlines, which had asked for an increase to 50 percent.
"But after digging into [the airlines'] costs, we arrived at the conclusion that 38 percent is the ideal number, so the aviation industry is not drastically hit but people's purchasing power can still be maintained," said Dudy in the press conference.
Despite the steep jump, the government is looking to keep the overall increase in airfares at 9 to 13 percent by temporarily waiving value-added tax (VAT) on tickets, setting aside Rp 1.3 trillion per month for the measure.
The government will also temporarily waive import duties on spare parts "to safeguard and increase the competitiveness of the aviation industry," said Airlangga.
Source: https://asianews.network/indonesian-government-doubles-down-on-fuel-subsidies-cuts-airfare-vat