Indonesia Scales Back Free School Meals Program Amid Budget Concerns
JAKARTA – Indonesia’s President Prabowo Subianto approved a new tariff on nickel exports Wednesday, sending prices for the battery metal surging as the government seeks to bolster revenue amid rising budgetary strain, according to Finance Minister Purbaya Yudhi Sadewa.
The move, which applies to both nickel and coal exports, comes as Indonesia grapples with economic pressures exacerbated by the ongoing conflict in the Middle East and its impact on global energy prices. The country is a net importer of crude oil and fuels, leaving it vulnerable to inflationary pressures and slower economic growth.
Futures climbed as much as 2.7% on the London Metal Exchange following the announcement, reaching $17,310 a tonne, according to reports from commodity markets. Discussions regarding the specific tax rates are still underway, Minister Sadewa indicated.
The decision to tax nickel exports marks a significant shift in policy, building on earlier considerations dating back to 2022 under former President Joko Widodo. Widodo had expressed a desire to attract investment from battery and electric vehicle manufacturers by encouraging domestic processing of raw materials. Indonesia currently accounts for more than half of global nickel production, and the metal is a key export earner for the nation.
The export tax is expected to increase production costs and further drive up nickel prices, according to Gao Yin, an analyst with Shuohe Asset Management Co. “Higher taxes are going to boost the cost of production and prices of nickel,” Yin said.
The policy shift also arrives as President Subianto is facing pressure to scale back his ambitious free meals program, a flagship initiative aimed at improving nutrition for Indonesian youth. Sources within the government have indicated the program will be adjusted to achieve “efficiencies” in light of the escalating fiscal challenges.
Indonesia’s move to tax nickel exports aligns with a broader trend in Asia towards securing energy supplies. Recent reports indicate that Vietnam is increasing its reliance on coal-fired power, while South Korea is considering removing output ceilings on coal and increasing nuclear generation, as disruptions in the Strait of Hormuz and paralysis in liquefied natural gas shipments continue to impact the region.
President Subianto has also defended the continued use of coal for power generation, citing its affordability as a critical factor during the current crisis, despite acknowledging its environmental drawbacks. He recently stated that coal is “the most affordable option for power generation,” while simultaneously outlining plans to boost renewable energy capacity, including a goal of establishing 100 gigawatts of solar power plants, with an initial target of 13 gigawatts in the near term.
As of 2023, coal and coal products accounted for 72% of Indonesia’s domestic energy production, according to the International Energy Agency.