World Bank Warns Indonesia on Swelling Energy Subsidies

Summary

The World Bank projects that the subsidy for PT PLN and PT Pertamina this year will swell to 1.5 percent of gross domestic product (GDP). The World Bank's Chief Economist for Indonesia and Timor, Leste Habib Rab, said the subsidies for the two SOEs were only 0.7 percent of GDP last year. Subsidies for PLN and Pertamina increased following the spike in world crude oil prices, swelling the operational costs.

The surge in subsidies occurred because the government did not increase electricity tariffs and fuel oil (BBM) prices. So far, PLN has only raised electricity tariffs for customers of Household Groups R2 and R3 and Governments' P1, P2, and P3. Meanwhile, Pertamina only increased the Pertamax fuel price. "So, this nearly doubled subsidy will help maintain inflation in the short term and maintain domestic demand," Rab said at the Indonesia Economic Prospects (IEP) Launch Wednesday (6/22).

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