Indonesia to Lower Fuel Costs, Boost Lending to Revive Growth

  • Government asks Pertamina to recalculate gasoline price
  • Policies due next week are third part of stimulus package

Indonesia’s government will seek to lower fuel costs and boost bank lending in a policy package to be released next week, President Joko Widodo said on Thursday.

The measures, which will be the third installment in a set of policies aimed at reviving Indonesia’s slowing economy, will have a faster impact than the previous two rounds, Widodo told reporters before a cabinet meeting in Jakarta. They will focus on boosting purchasing power and supporting labor-intensive sectors, said the president, who is commonly called Jokowi.

“We need something that can be immediately felt by the business sector and by the people.”

Growth in Southeast Asia’s economy slowed to the least since 2009 in the second quarter and the rupiah is down 16 percent this year in Asia’s worst performance after Malaysia’s ringgit. The first two parts of the government’s policy package released last month, which focused on cutting red tape and speeding up the business permitting process to lure more foreign investment, failed to spur any gains in the currency.

Widodo said on Thursday that he had asked state-owned energy firm PT Pertamina to recalculate fuel prices to see if they can be lowered. The president removed gasoline subsidies at the beginning of this year, although authorities have maintained some control over prices at the pump instead of letting them completely follow international prices. The government is also looking at ways to enable banks to reduce their operational costs in order to boost lending and lower borrowing rates, Coordinating Minister for Economic Affairs Darmin Nasution said on Thursday.

“Short-term measures and evidence of quick wins are important in creating positive sentiment now, when it’s needed,” said Aldian Taloputra, an economist at PT Mandiri Sekuritas in Jakarta. “Adjustments to fuel prices would help purchasing power and support consumption growth, but the government must be careful not to cut too low as that may result in losses for Pertamina.”

The government is also meeting with governors to cut bureaucracy in the regions, Home Affairs Minister Tjahjo Kumolo said on Thursday. Some 44 regencies and nine cities that haven’t implemented a one-stop service for business permits yet will be liable for sanctions and may see their budget allocations from the central government affected, he said.

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