Indonesia Cuts Energy Prices in New Round of Economic Reform

Indonesia announced cuts in energy prices and electricity tariffs for the industrial sector, in the third installment of an economic reform package that the central bank said is boosting confidence in the rupiah and stock markets.

Regulated diesel prices were cut by 200 rupiah to 6, 700 rupiah (48 U.S. cents) per liter, effective three days from Wednesday, Coordinating Minister for Economic Affairs Darmin Nasution told reporters in Jakarta. Ceramic and chemical producers would also get cheaper gas starting Jan. 1, 2016, he said. Labor-intensive industries will get a 30 percent discount on electricity tariffs from 11 p.m. until 8 a.m., Nasution said.

The policies are the latest in a series aimed at attracting investment and boosting consumption to prop up an economy hit by a collapse in commodity prices and growing at its slowest pace since 2009. The first two packages were mostly focused on supply-side constraints such as speeding up licenses for businesses and removing unneeded regulations.

“This is definitely a more immediate boost compared to the previous two policy packages,“ said Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore. “The reduction in energy prices, while not too significant, should provide relief for local businesses.”

A rally this week in the rupiah and the stock market is attributable to expectations that the Federal Reserve will delay interest-rate increases, and the government’s reform agenda, according to the central bank’s Senior Deputy Governor Mirza Adityaswara.

“There has been a positive response from the markets to the government’s deregulation,” said Adityaswara, who stood alongside Nasution at the state palace. “It shows the government is serious about structural reform.”

The rupiah has strengthened about 6 percent this week, paring its loss this year to about 11 percent. The Jakarta Composite Index of shares advanced 6.6 percent this week.

President Joko Widodo brought in new economy and trade ministers in August, seeking to reboot a first year in office characterized by policy U-turns and slow progress on infrastructure. On Sept. 9, he announced a first package of measures including a pledge to revise about 100 regulations seen as detrimental to doing business, as well as plans to speed up stalled government spending.

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