S&P: Indonesia fuel price rise a boon

Standard & Poor's said the Indonesian government's (foreign currency B+/stable/B; local currency BB/stable/B) 126% average fuel price rise is an encouraging move that should relieve immediate pressure on fiscal and external balances and assuage concerns on progress in fiscal consolidation.

The agency said the magnitude of the increase was considerably larger than the 29% increase in March this year, the 30% to 70% initially considered by the government, or what was thought to be within the risk tolerance of a president worried about possible social unrest.

Therefore, the move should restore investor confidence somewhat by alleviating perceptions that the government was coerced by adverse market reaction to its apparent indecision and unwillingness to address the subsidy issue in a forceful, timely manner, S&P noted.

Although the size of the fuel price hike appears to stamp the president's authority on the government and is a statement of leadership, its belated nature highlights the risks posed by a seeming inability to formulate appropriate and timely policy responses when faced with external shocks, the agency added.

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