On September 3, the Indonesian government raised the price of subsidized fuel (BBM), in the midst of a global inflation, and this triggered a price hike of many basic necessities and commodities. Small traders are going out of business and consumers see a decline in their purchasing power.
Nur, a chili trader, said after the fuel price hike, on Sunday mornings which used to be a busy time for him, he now sees much less human traffic in the marketplace he works at. He is considering closing down his business if there is no improvement.
Anthony Budiawan, managing director of Political Economy and Policy Studies (PEPS), told Maritime Fairtrade that in modern society, fuel is a controlling factor in people’s lives and importantly, fuel must be affordable for all people, including the lowest strata of society.
Ideally, he said, the expenditure on fuel should be five percent of income. If the percentage goes any higher, other expenses must be reduced correspondingly. This same reasoning applies to businesses as well. He said businesses, to make up for the fuel price increase, will have to reduce expenditures on other areas, for example labor cost, or to pass it on to consumers. In the end, Anthony said poverty will rise and the government has to pay attention to this area.
In an interview with Maritime Fairtrade, Ahmad Heri Firdaus, researcher, INDEF Center of Industry, Trade and Investment, said historically, fuel price hike was directly related to high inflation. For example, after adjusting for fuel prices, Indonesia’s annual inflation in 2008 and 2014, reached 11.06 percent and 8.36 percent, respectively.
Firdaus predicted inflation will continue until the end of the year, starting in September at 1.85 percent, October 1.2 percent, November 0.8 percent and December 0.9%. He added inflation will cause more poverty.
“There will be an increase in the national poverty line, more people will fall into poverty, potentially touching 10.3 percent or higher, as compared to the figure during the Covid-19 pandemic,” he said.
He also said the fuel price hike would decrease real incomes in each group: rural 1 (-1.28 percent); rural 2 (-1.71 percent); rural 3 (-2.27 percent); rural 4 (-1.77 percent); rural 5 (-1.63 percent); urban 1 (-2.58 percent); urban 2 (-2.46 percent); and urban 3 (-1.15 percent). Rural is defined as an area located on the outskirts or villages, while urban is an area located in urban areas.
According to Firdaus, the direct cash assistance (BLT) of IDR 24.17 trillion (US$1.6 billion) for 20.65 million Beneficiary Families (KPM) will not be enough to cushion the price hike. He recommended more social assistance to the poor.
Celios Bhima Yudhistira, an economist, predicted the percentage of poor people will increase to between 10 and 10.5 percent or one to 1.3 million new poor. The BLT will only help for the first four months. He wanted the government to raise the minimum wage by five to seven percent, not just one percent.
Sooner or later, he added, the middle class will become vulnerable too. For example, the middle class used to pay IDR 7,650 per liter for Pertalite fuel but now they have to pay IDR 10,000. The new poor will not be covered under the BLT as they fell into this bracket after the fuel price hike, so, the government has to have the foresight and prepare a safety net for this group.
In March, the poverty line was recorded at IDR 505,469/capita/month, with the composition of the food poverty line of IDR 374,455 (74.08 percent) and the non-food poverty line of IDR 131,014 (25.92 percent). The average poor household has 4.74 household members. Thus, the average poverty line per poor household is IDR 2,395,923 per poor household per month.
All photos credit: Iqbal Ramdhani. Top photo: A mother and her daughter sleeps on floor in front of store.