News / Economy

Indonesia Braces for Rising Fuel Costs

A worker fills a tank with subsidized fuel at a fuel station in Jakarta, April 18, 2013.
A worker fills a tank with subsidized fuel at a fuel station in Jakarta, April 18, 2013.
Kate Lamb
Indonesian authorities are expected to slash fuel subsidies next month by 44 percent, sending fuel costs soaring. Economists say the subsidies are a costly expense that increases Indonesia’s reliance on foreign oil imports. But they remain politically popular and politicians are worried about a public backlash.

Rising gasoline costs are bemoaned across the globe and particularly in Indonesia - a nation heavily dependent on subsidized fuel.

For decades, fuel subsidies have been politically volatile.

The government planned to cut the fuel subsidy last year, but balked in the face of national uproar. This year, the proposed cuts - the first in five years - no longer hinge on a parliament vote.

On his official Twitter account, President Susilo Bambang Yudhoyono admits it will be the toughest decision of his presidency.

Head of a party marred by ongoing corruption scandals and plummeting popularity, the president’s decision is both political and economic, says political analyst Aleksius Jemadu.

"They want to achieve two goals at the same time. They want to achieve their economic goals to decrease the deficit of the state budget, but at the same time they also [want to] take care of their popularity," said Aleksius Jemadu.

In a nation where more than a 100 million people live on less than $2 dollars a day, cheap fuel is good politics.

But critics say the fuel subsidy is poorly targeted, unfairly benefiting the middle class.

And, in the minds of economists, the practice burdens the state budget and creates a reliance on foreign oil imports.

Authorities have allocated about $20 billion for fuel subsidies this year, accounting for 15 percent of the overall budget. But, that is not expected to be enough to cover the subsidy’s cost.

Despite the fuel subsidy controversy, Fauzi Ichsan, a senior economist at Standard Chartered, says that Indonesia is still doing very well compared to fiscal deficits in the United States, Europe and Japan.

"While economically it is very prudent to hike fuel prices, domestic fuel prices are lower than international prices by about 30-40 percent and that has created a lot of smuggling and hoarding. On the other hand, there is no fiscal crisis, if you look at the fiscal deficit as a percentage of GDP, in 2012 it was less than 2 percent, like 1.8 percent of GDP," he said.

Fauzi says economists have been pushing for fuel price increases for the past year - not because of the deficit - but because it is economically prudent to do so.

He says that, although inflation could rise when the subsidies are reduced, it should stabilize in the long term. Fauzi says the government should offer cash benefits to minimize the impact on the poor.

Under the proposed changes, private vehicles will pay an additional 21 cents per liter, still among the cheapest rates in Asia.

Suryo Bambang Sulisto, head of the Indonesian Chamber of Commerce and Industry, says that even a reduced subsidy creates a false economy and the government should scrap it altogether.

"We are of the view, we are in opposition, to abolish it altogether so this huge saving can be directed to a more productive use. So, in other words, reallocate this subsidy for something that is more useful, more targeted," said Suryo Bambang Sulisto.

Sulisto says the funds would be better spent on infrastructure, regional growth and education.

But, at a gas station in South Jakarta this morning, 50-year-old Melly says she is definitely going to feel to pinch.

"I have a catering business I’m on the road every day and buy a lot of gasoline," she says. "I just can’t accept it," she said.

The proposed hike is expected to save Southeast Asia’s largest economy an estimated $2.1 billion a year.

You May Like

Obama: Alaskans Feel Signs of Climate Change

They're seeing bigger storm surges as sea ice melts, more wildfires, erosion of glaciers, shorelines More

Katrina Brought Enduring Changes to New Orleans

The city’s recovery is the result of the people and culture the city is famous for, as well as newcomers and start-up industries More

Magical Photo Slides Show Native Americans in Late 1800s

Walter McClintock spent 20 years photographing the Blackfoot Indians and their vanishing culture at the dawn of the modern age More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Colombians Flee Venezuela as Border Crisis Escalatesi
X
August 27, 2015 2:08 AM
Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Colombians Flee Venezuela as Border Crisis Escalates

Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Is China's Economic Data Accurate?

Some investors say China's wild stock market gyrations have been made worse by worries about the reliability of that nation's economic data. And some critics say the reports can mislead investors by painting an unrealistically-strong picture of the economy. A key China scholar says Beijing is not fudging ((manipulating)) the numbers, but that the economy is evolving quickly from smoke-stack industries to services, and the ways of tracking new economic activity are falling behind the change. V
Video

Video Next to Iran, Climate at Forefront of Obama Agenda

President Barack Obama this week announced new initiatives aimed at making it easier for Americans to access renewable energy sources such as solar and wind. Obama is not slowing down when it comes to pushing through climate change measures, an issue he says is the greatest threat to the country’s national security. VOA correspondent Aru Pande has more from the White House.
Video

Video Shipping Containers Provide Experimental Housing

Housing prices around the San Francisco Bay area are out of reach for many people, so some young entrepreneurs, artists and tech industry workers are creating their own houses using converted shipping containers. But as VOA's Mike O’Sullivan reports from Oakland, the effort requires ingenuity and dealing with restrictive local laws.
Video

Video Arctic Draws International Competition for Oil

A new geopolitical “Great Game” is underway in earth’s northernmost region, the Arctic, where Russia has claimed a large area for resource development and President Barack Obama recently approved Shell Oil Company’s test-drilling project in an area under U.S. control. Greg Flakus reports.
Video

Video Philippine Maritime Police: Chinese Fishermen a Threat to Country’s Security

China and the Philippines both claim maritime rights in the South China Sea.  That includes the right to fish in those waters. Jason Strother reports on how the Philippines is catching Chinese nationals it says are illegal poachers. He has the story from Palawan province.
Video

Video Technique May Eliminate Drill-and-Fill Dental Care

Many people dread visiting dentists because they're afraid of drills. Now, however, a technology developed by a British firm promises to eliminate the need for mechanical cleaning of dental cavities by speeding a natural process of tooth repair. VOA’s George Putic reports.
Video

Video China's Spratly Island Building Said to Light Up the Night 'Like A City'

Southeast Asian countries claim China has illegally seized territory in the Spratly islands. It is especially a concern for a Philippine mayor who says Beijing is occupying parts of his municipality. Jason Strother reports from the capital of Palawan province, Puerto Princesa.
Video

Video Ages-old Ice Reveals Secrets of Climate Change

Ice caps don't just exist at the world's poles. There are also tropical ice caps, and the largest sits atop the Peruvian Andes - but it is melting, quickly, and may be gone within the next 20 years. George Putic reports scientists are now rushing to take samples to get at the valuable information about climate change locked in the ice.
Video

Video French Experiment in Integrating Roma Under Threat

Plans to destroy France’s oldest slum have sparked an outcry on the part of its Roma residents. As Lisa Bryant reports from the Paris suburb of La Courneuve, rights groups argue the community is a fledgling experiment on integrating Roma who are often outcasts in many parts of Europe.
Video

Video Kenyans Turn to Agriculture for Business

Each year Kenyan universities continue to churn out graduates for the job market despite the already existing high rate of unemployment among youth in the country. Some of these young men and women have realized that agriculture can be as rewarding as any other business or job, and they are resorting to agribusiness in large numbers as a way of tackling unemployment. Rael Ombuor reports for VOA.
Video

Video First Women Graduate Elite Army Ranger School

Two women are making history for the U.S. Army by proving they are among the toughest of the tough. VOA's Carla Babb reports from Fort Benning, Georgia as 94 men and those two women rise as graduates of the difficult Ranger school.

VOA Blogs

World Currencies

EUR
USD
0.8874
JPY
USD
120.83
GBP
USD
0.6497
CAD
USD
1.3271
INR
USD
66.162

Rates may not be current.