Directives of President of the Republic of Indonesia for Regional Leaders, the State Palace, September 12, 2022
Assalamu’alaikum warahmatullahi wabarakatuh,
May peace be upon us all,
Greetings of virtue.
Distinguished Vice Presidents, Cabinet Ministers, Governor of central bank Bank Indonesia, Governors, Regents, Mayors, and members of the Regional Leaders Forum (Forkopimda).
I have reiterated that all countries are currently facing a tough situation, all countries are currently facing a difficult situation because we have not yet recovered from the pandemic. Then a war broke out, generating energy crisis, food crisis, and financial crisis. In the meantime, in our country, we are facing problems related to fuel as experienced by other countries. In some countries, fuel price is already at Rp17,000, in some other countries it is Rp30,000. Even gas prices in Europe have now gone up six or seven times.
We have made various efforts so that our fuel subsidy does not increase, but we cannot continue to do that because fuel subsidy has tripled from Rp152 trillion to Rp502.4 trillion. In addition, if we look at a bigger picture, the subsidy quota is only for 23 million kiloliters of Pertalite and 15.1 million kiloliters of diesel. The calculation shows that the subsidy can only be available until early October.
Counting until the end of the year, the end of December, we need 29.1 million kiloliters for Pertalite and 17.4 kiloliters for diesel. This is our estimation. Thus, there will be an additional need for a subsidy of Rp195 trillion, meaning that our total subsidy need is Rp700 trillion. Our State Budget cannot afford it. Therefore, we have made a fuel price adjustment. I think all of you are aware of this matter.
To help [addressing the impact of] fuel price adjustment, I order provinces, regencies, and cities to join hands with the Central Government to help those affected by the fuel price hike. Inflation is predicted to increase by 1.8%. We have to prevent that. To that end, I order governors, regents, and mayors to ensure regions to work hand in hand with the Central Government, just like how we collaborated in addressing COVID-19 pandemic. I believe, God willing, we can do this to control inflation under 5%.
We have delivered Circular of Minister of Home Affairs and Regulation of Minister of Finance to all of you. The provisions stipulate that 2 percent of the general transfer funds, namely the general allocation funds (DAU) and the profit-sharing fund (DBH), can be used for subsidies to address issues caused by fuel price hike.
The subsidies could be in the forms of social assistance, especially for the people in need. Fishermen, for example, use diesel fuel every day. We can help them by providing subsidy. Motorbike taxi drivers also use fuel and we can help them by providing subsidies. MSMEs owners can also be assisted in purchasing raw materials with a higher price due to fuel price adjustment. We can also provide subsidy for public transportation. We can subsidize the fare, not the total fare, but we can reduce the fare hike with the subsidy.
In the meantime, emergency funds can be used for subsidies to reduce inflation. For example, an increase in the price of egg, price of shallot, or price of garlic, can be reduced by using emergency funds to subsidize logistics costs, for example, in the time when the price of shallot rises. The shallot comes from Brebes, and the market is in Lampung province. How much does the transportation cost from Brebes to Lampung? The transportation cost is Rp3 million. The transportation cost, Rp3 million, should be paid by regional governments, so the price for farmers in Brebes will be the same as the price in the market. If all regions do this, we will be able to prevent the inflation hike.
Regarding price of egg, which is currently still high, the regional governments can buy egg from producers, for example in Blitar or Purwodadi or Bogor. Regional governments can buy directly from the producers and send it to the market, so the market price would be the same with the price from the producers since the transportation cost is borne by regional governments, provincial governments, regency governments or city governments.
Emergency funds can also be allocated for social assistance for those affected by the fuel price adjustment. I once did that when I was a mayor, subsidizing transportation cost, so that we could lower inflation to around 1.2%. At that time, I received an award from Minister of Finance, namely Rp10 billion in the form of the regional incentive fund (DID). It could be done. We can do this. Surely, we need to do our work with more detailed information. Today, all countries have concern over rising prices of goods and services. Everyone has concern over inflation.
In the time when the price of goods and services in a region rise, and the regional leader does not respond [to the price hike], it means that the leader does not understand about the inflation and its impact on the people. Be cautious with that word, inflation, be cautious. Let me reiterate that all countries have concern over inflation. The instrument used [to deal with inflation] is usually to set a higher interest rate. We have done that and we also overcome problems on the ground so we hope that our country can control the inflation.
As of today, 2% of general transfer fund is Rp2.17 trillion, and emergency fund is Rp16.4 [trillion], with only Rp6.5 trillion having been disbursed. It means that provinces, regencies and cities have fiscal space to use general allocation funds and the emergency fund. The disbursement rate of the State Budget is only 47 percent.
Once again, I order Governors, Regents, and Mayors to use the time left in October, November and December to disburse the available budget. We know that the contribution of the Regional Budget to regional economic growth is very significant. We should be aware of the impact of inflation, especially those related to food prices. The contribution of food prices to poverty is 74 percent. Once food price rises, particularly price of rice, poverty rate in regions will rise. You must immediately respond to the rising price of rice in your region even if the increase is only Rp200 or Rp500. You must immediately step in because it will affect poverty rate in provinces, in regencies, and in cities that you govern. [The rising price] will directly increase the poverty rate.
This is a list of regencies and cities with the highest inflation rate. Our attention and intervention are needed here: Luwuk, Jambi, Kotabaru, Sampit, Tanjung Selor, Jayapura, Sintang, Bungo, Padang and Sibolga. And we also have five provinces, out of ten provinces, with the highest inflation rate. We must pay attention to this. The five provinces are in the island of Sumatra, namely Jambi, West Sumatra, Bangka Belitung, Aceh, and Riau Islands. Other provinces are Central Kalimantan, Maluku, Papua, Bali, Central Sulawesi, West Nusa Tenggara, Riau, South Kalimantan, Lampung, Bengkulu, Special Region of Yogyakarta, North Kalimantan, South Sumatra, North Sumatra, East Java, Central Java, South Sulawesi, and East Kalimantan. Once again, we must be careful. If we don’t step in, it will increase the poverty rate.
To that end, all provinces, regencies, and cities must know their rice supplier when they buy rice from outside the region. We have to know, for example, which regency or city that supplies egg, or which city or regency that supplies shallot. We must know all the detailed data. If any of you does not understand this, do ask Minister of Trade or the National Food Agency for information. The information is available.
That concludes my remarks on this auspicious occasion.
I have met with Attorney General, Chief of the Indonesian National Police, and the BPKP. There is no need for hesitation to use the Regional Budget as we have issued Regulation of Minister of Finance and Circular of Minister of Home Affairs. The legal bases are clear as long as the budget is used to address problems due to fuel price adjustment that we announced last week.
That concludes my remarks on this auspicious occasion.
I thank you.
Wassalamu’alaikum warahmatullahi wabarakatuh.