Indonesia | Jokowi raises fuel price to fulfill key development pledge

iatKTU.rZe0MIndonesian President Joko Widodo raised fuel prices to reduce state energy subsidies, moving on an election pledge less than a month after taking office to free funds for development plans.
The price of subsidized gasoline was increased to 8,500 rupiah (USD0.70) a liter from 6,500 rupiah effective yesterday, and diesel has been raised to 7,500 rupiah a liter from 5,500 rupiah, after an announcement by Widodo in Jakarta late Monday. The central bank will hold an unscheduled monetary policy review today, spokesman Peter Jacobs said.
The rupiah and local stocks rallied yesterday on optimism that Widodo, known as Jokowi, is taking steps to overhaul Southeast Asia’s largest economy. While falling oil costs gave the president room to limit the fuel price increase, his government has yet to say if it will revamp or scrap the decades-
old subsidy system beyond changing prices.
“This was a very important step for Indonesia, and basically eliminated retail fuel subsidies overnight with oil trading where it is now,” Daniel Wilson, an economist at Australia & New Zealand Banking Group Ltd. in Singapore, said in e-mailed comments after the announcement.
“Raising the subsidized fuel price will ease the pressure on Indonesia’s fiscal deficits and is a positive step for the sovereign rating of Indonesia,” Takahira Ogawa, a director of sovereign ratings at Standard & Poor’s, said in an e-mail yesterday. Even so, “unless a comprehensive overhaul of the domestic fuel price mechanism is put in place, Indonesia’s fiscal position is still vulnerable to fluctuation in global oil prices.”
“The country needs a budget to build infrastructure and for education and health,” Jokowi said as he announced the price changes. “Hopefully, the decision to shift the subsidy to the productive sector will open the door for a budget that will be more beneficial for the Indonesian people.”  Rieka Rahadiana and Agus Suhana , Bloomberg

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