Fuel price hike looms in Indonesia

25% of poorest families to get compensation.

According to DBS, the government announced late last night that fuel price hikes have been approved. In order to reduce the impact on the less well to do, the poorest 25% of families will receive some form of compensation. 

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Stress has been building on the budget position overthe past year amid slow revenue growth and increasing motorization which led to burgeoning subsidies. Without the hike in fuel price,the overall budget deficit for this year would come close to the legal limit of 3% of GDP.

The upcoming week will be critical asthe authorities execute the increase in fuel prices.

Notably, street protests in early 2012 had forced the government to backtrack on similar reforms. We reiterate that headline inflation would spike close to 8% and GDP growth forthe year would be shaved by around 0.3 percentage ptsiffuel prices were raised starting in July.