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Amid Slumping Global Oil Prices, Indonesia's Fuel Subsidy Cut Pays Off

  • Brian Padden

At the beginning of this year, Indonesian President Joko Widodo cut long-standing government-funded fuel subsidies.

In the past, protests and even riots have followed price increases, but this time plummeting global oil prices have softened the impact.

So far, many customers at this state-owned Pertamina gas station in Jakarta support the government decision to end fuel subsidies. But the cost of gasoline at the pump has increased only slightly because world oil prices have plummeted.

If prices rise significantly, some like Mieke Kusuma will object.

“For the next future for our government [it is] better [to] keep the low price for our people,” said Kusuma.

Pricecuts not across the board

Others like Erwin Suherwin are skeptical about letting the market set the price, especially while energy costs decrease as food costs continue to rise. “It should be followed by the prices of goods going down too," he said. "The gas price is already down but other prices are not. It’s difficult for people to accept that.”

Sales of new cars at the Auto 2000 Toyota dealership in East Jakarta have slowed recently. Branch Manager Biyouzmal attributes the drop off to public anxiety over the elimination of subsidies. "There is an impact from the subsidy cut, especially to the sales of vehicles with big engines like the 2,000 cc engine and above," he noted. "But I believe this is just temporary, this decrease by about 10 percent.”

In the long run, business leaders say Widodo's decision to reduce subsidy expenses from more than 13 percent of the budget to one percent will significantly improve the economy.

Cost savings benefit others

According to Sofjan Wanandi, an adviser to Vice President Jusuf Kalla and former chairman of the Indonesian Employers Association, the president's willingness to make bold policy decisions bodes well for the country's future.

“We consider as businessmen, international and domestic, [the fact] that [Widodo] even dared to make a difficult decision," he said. "That is something good that we showed — that, one by one, he is willing to do some things good for the economy of this country.”

Wanandi also says the government is using funds that were designated for subsidies to improve transportation and build new power plants to attract more international investment.

And low-income residents are receiving increased benefits such as highly subsidized care at government run medical clinics and hospitals.

So the president's bold move appears to be paying dividends, for both Indonesia's people and its economy, as long as the price of oil remains low.

Producer Ade Irma in Jakarta contributed to this report.

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