Indonesia trying to confront runaway fuel subsidy costs

Article by Christian Andrei, on April 1, 2013

Many Indonesians are afraid that they will lose a subsidy from the government that makes them benefit from having one of the most affordable fuel prices in Asia. Once again, its government is trying to prevent fuel subsidy costs from rising. Its attempts account for over 30% of state spending. They’re also using up funds that should have gone to boosting infrastructure. It’s expected that this week, President Susilo Bambang Yudhoyono's administration will unveil new measures to limit the use of subsidized fuel. But as elections are approaching, he certainly won’t want to relive memories of protests in 2005 and 2008 over fuel price increases.

It’s believed that he will have to give in to what the masses want and not discontinue subsidies. The government could ban private cars from using subsidized fuel in Jakarta and other big cities. Critics said that it will be difficult to implement and won’t do much to relieve the huge load on the national budget.

In 2012, the bill for subsidies amounted to $22 billion, which is almost 4% of the total economic output. When interviewed by Reuters, Suryo Bambang Sulisto, chairman of Indonesia's influential chamber of commerce (Kadin), said that any plan that doesn’t get rid of fuel subsidies altogether will not be effective. He said that subsidies have to be stopped since they create a false economy that has resulted to widespread corruption, smuggling, and fund misallocation.

Topics: indonesia

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