Jokowi pledges cooperation with Bank Indonesia as deficit widens

Widodo, also known as Jokowi, would refrain from raising fuel prices this year, a move that may be unavoidable eventually as his government seeks to reduce the fuel subsidy, said Arif Budimanta, a member of his economic team.

“We want to strengthen coordination between fiscal and monetary policy as some people aren’t quite happy with the volatility of the rupiah,” Budimanta said in an interview in Jakarta on Wednesday. “Bank Indonesia will remain independent.”

The central bank has borne the burden of containing a current-account deficit that has hurt the rupiah, raising interest rates last year to cool demand as the government’s fuel-subsidy program spurred energy imports. The scope for more monetary tightening has shrunk this year as growth in Southeast Asia’s biggest economy slows, even as Bank Indonesia signaled the trade balance remains under pressure.

Indonesia’s current-account deficit this year may be about $28 billion, bigger than the previous estimate of about $25 billion due to high oil imports, Bank Indonesia Governor Agus Martowardojo said yesterday. The authority kept its benchmark interest rate unchanged at 7.5 percent for an eighth meeting this month.

“Indonesia has twin deficits in the budget and current account,” said Budimanta, a lawmaker from the party backing Jokowi. “We want to boost spending especially capital spending,” and the Jokowi administration would study how to decide the correct volume of subsidized fuel, he said.

State subsidies that keep local fuel prices low have strained the trade balance and are tying up funds that could be used to build roads, bridges and railways. The current administration has had to cut 2014 budget spending for ministries to fund the rising subsidy costs.

“If we can cut it, it will help our budget,” said Budimanta. “If we can manage this, at the same time we can see the purchasing power of people, so when we have no choice, we have to raise the prices.”