Jakarta, IO – After hinting at it for months, the government finally moved to raise the price of fuel (BBM) on Saturday, September 3. Predictably, this sparked public protests and demonstrations. In the midst of a relatively high inflation rate (4.69 percent yearon-year in August) and the still ongoing Covid-19 pandemic, this has eroded purchasing power. Experts fear that the fuel price hike will spike inflation even further and push more people into poverty.
In response, students, the Labor Party, labor unions, farmers, fisherfolk and other elements of the society staged massive protests in many parts of Indonesia. Demonstrations were held outside executive and legislative seats including the State Palace, the Parliament House, to Regional Legislative Councils (DPRD). They called on the government to reverse the policy. The Labor Party and labor unions even threatened a nationwide strike.
To justify the policy, the government has repeatedly argued that the fuel subsidy has so far been ineffective, as it is enjoyed more by the prosperous classes than by those desperately needing it: the poor. Making matters worse, the global oil price has been surging, as the grinding Russia-Ukraine war has triggered a global energy crisis.
As a result, the Rp502.4 trillion fuel subsidy budget as stipulated in Presidential Regulation (Perpres) 98/2022 is projected to surge to an unsustainable level, putting immense pressure on the national budget (APBN). Thus, the government has no choice but to increase the price of Pertalite-branded gasoline (RON90) by 30.71 percent to Rp. 10,000 per liter, diesel fuel by 32.03 percent to Rp6,800 per liter, and Pertamax-branded gasoline (RON92) by 16 percent, to Rp14,500 per liter.
Of course, the quite significant increase (more than 30 percent) further corrodes purchasing power, especially that of the working class. Statistics Indonesia (BPS) warned that the fuel price hike will push up inflation because fuel, with a weighting of 3.96 percent, is one of the major contributors to inflation in the “administered price” category.
High inflation also means that the minimum wage increase of 1.09 percent in average set in 2022 will be cancelled out by 4.69 percent inflation in August. The Institute for Development of Economics and Finance (INDEF) even predicted that inflation could potentially touch 8.79 percent as result of the fuel price hike. This will certainly burn a larger hole in ordinary pockets.
To maintain purchasing power, the government launched a social aid (bansos) program, as compensation to soften the blow of the fuel price hike. It consists of three components: first, Rp12.4 trillion in Direct Cash Assistance (BLT) for 20.65 million poor households. Under this scheme, eligible recipients will receive Rp600,000 in two tranches of Rp300,000 each.
Second, Rp9.6 trillion in wage subsidy assistance (BSU) for 16 million workers registered with Workers Social Security Agency (BPJS Ketenagakerjaan), applicable to those with a maximum monthly salary of Rp3.5 million per month, or equivalent to the regional minimum wage. Each worker will receive Rp600,000, as per Manpower Ministerial Regulation 10/2022.
Third, assistance for public transportation, app-based (online) motorcycle taxis, and fisherfolk, by regional administrations, the amount of which is 2 percent of the general transfer funds of Rp2.17 trillion. This provision is based on Finance Minister Regulation 134/PMK.07/2022.