Mandate to Minimize Impact of Inflation
The central government will provide various types of social assistances to mitigate the impact of the increase in inflation on the people's buying power.
Regional governments are required to allocate social protection funds in the 2022 regional budgets (APBD) to reduce the impact of inflation following the increase in subsidized fuel prices.
JAKARTA, KOMPAS — The Finance Ministry has required local governments to allocate social protection funds in their 2022 regional budgets to reduce the impact of inflation. The head of the regional government is responsible for allocating the funds and their spending.
The instruction is stipulated in the Finance Minister’s Regulation Number 134/PMK.07/2022 concerning mandatory expenditures in the management of the impact of inflation for the 2022 fiscal year. The Fiscal Balance Director General of the Finance Ministry, Astera Primanto Bhakti, said the increase in the prices of subsidized fuel brands Pertalite and Solar diesel beginning 3 Sept. 2022, would inevitably lead to an increase in inflation.
The central government will provide various types of social assistances to mitigate the impact of the increase in inflation on the people's buying power. The regional governments are also required to use part of the general allocation fund (DAU) and profit-sharing funds (DBH) distributed by the central government to finance similar social-assistance programs.
The funds must be prioritized to protect the poor.
"This [mandate] is in line with the orders of President [Joko “Jokowi” Widodo] when announcing the increase in subsidized fuel brand prices. The funds must be prioritized to protect the poor," Astera said on Thursday (8/9/2022).
The government has allocated Rp 24.17 trillion (US$1.626 billion) to finance social assistance programs to help maintain people's buying power. There will be three types of social assistance, namely cash transfer (BLT) for 20.65 million poor families, wage subsidy for 16 million workers and the allocation of 2 percent of general transfer funds (DTU) for public transportation subsidies.
Astera said that managing the impact of inflation this time must be supported by the local government via the allocation of the mandatory social protection funds for the period October-December 2022 in their APBDs to help micro- small and medium enterprises (MSMEs) and fishermen.
The mandatory spending can also be used to create jobs and to subsidize the public transport sector in the regions. "Local governments are given the authority to make the programs so that the impact of inflation on the community can be minimized," he said.
The mandatory spending will be taken from the DTU and DBH funds allocated for October-December 2022. The mandatory social protection spending does not include mandatory spending of 25 percent of the DTU that was allocated in the 2022 APBD.
In his address when opening the 100 Indonesian Economists Workshop held by the Institute for Development of Economics and Finance (Indef) on a hybrid basis in Jakarta on Wednesday (7/9), President Joko Widodo said that the central government could not walk alone in reducing the impact of the inflation as it also required the involvement of local governments. The regional governments, among others, were also required to subsidize the public transportation and a number of important commodities, the President said.
According to the government's estimate, the rise in the subsidized fuel prices by 30 percent would lead to an increase in inflation by 1.8 percent this year. “Local governments must also help, such as when coping with the COVID-19 pandemic. They can use 2 percent of the general allocation funds received from the central government and standby funds to control inflation. This budget can be used to cover transportation costs for important commodities in the regions," said the President.
In order to prevent an increase in the price of shallots due to an increase in transportation costs, local governments could, for example, provide a subsidy for transportation costs, he said.
The transportation cost for a truckload of shallots from Brebes, Central Java, to Lampung, for example, is about Rp 3 million.
In this way, the difference between farmer and market prices would not be too wide. The transportation cost for a truckload of shallots from Brebes, Central Java, to Lampung, for example, is about Rp 3 million.
The same thing can be done for other important commodities, such as chicken eggs transported from Bogor, West Java, and Blitar, East Java.
During a visit to the Kompas’s editorial office on Wednesday, Deputy Finance Minister Suahasil Nazara said that local governments needed to immediately design additional social assistance, both for existing programs and new programs. "Through optimization of regional budgets, inflationary pressures caused by fuel prices can be reduced," he said.
The head of the Fiscal Policy Agency of the Finance Ministry, Febrio Kacaribu, estimated that inflation in 2022 would amount to between 6.6 percent and 6.8 percent. The increase in fuel prices is expected to erode the purchasing power of those in the lower-income bracket.
Must be on target
Economist of the Institute for Development of Economics and Finance (Indef), Nailul Huda, reminded that the social assistance provided by the government would only bring momentary relief to the people who received it. However, once the aid ended, people living below the poverty line would face difficulties again, he said.
The decline in people's purchasing power and the increase in poverty levels could be prevented if the energy subsidies reached their targeted recipients, namely those in the lower-middle-income bracket.
Therefore, Nailul stressed that the government should immediately fix the classic problem, namely the distribution of subsidies that did not reach targeted recipients. The decline in people's purchasing power and the increase in poverty levels could be prevented if the energy subsidies reached their targeted recipients, namely those in the lower-middle-income bracket.
The head of Bank Mandiri’s Industry and Regional Research, Dendi Ramdani, believes that the increase in subsidized fuel prices will affect a number of economic sectors such as public transportation, micro-enterprises, fisheries and agriculture.
The increase in the prices of Pertalite and Solar diesel brands will push inflation up to 5.89 percent by the end of this year. "Without an increase in the price of Pertalite and diesel fuel [brands], inflation at the end of this year is estimated at only 4.6 percent," he said. (DIM/HEN/INA/NDU/NCA/ETA/BRO)
(This article was translated by Hendarsyah Tarmizi)