Indonesia weighs response to price pressures from Middle East war

It could cut fuel subsidies or slash spending on the President's signature school meals programme. Read more at straitstimes.com.

JAKARTA – Price pressures fuelled by the Middle East war may push Indonesia’s government to reconsider its dogged defence of energy subsidies and a costly meals scheme close to the heart of President Prabowo Subianto, analysts say.

Unlike many of its neighbours, South-east Asia’s biggest economy has not seen long fuel queues as global oil prices have soared, nor have its citizens been subjected to pandemic-style work-from-home measures.

But that may change.

As Mr Prabowo seeks to raise the economic growth rate from 5.1 per cent in 2025 to 8 per cent by 2029, powered by high public spending, Jakarta has limited options for offsetting the impact of rising oil prices, according to experts.

It can either cut fuel subsidies and risk political upheaval, slash spending on Mr Prabowo’s signature school meals programme, or overshoot the fiscal deficit that is capped by law at 3 per cent of GDP.

“We are already in a critical situation”, with fuel and natural gas supplies at about three weeks’ worth – the maximum storage capacity – and a dearth of new suppliers to offset the Middle East blockage, said Dr Yose Rizal Damuri, executive director of Indonesia’s Centre for Strategic and International Studies.