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.
TEXT SIZE - +
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

Algerians Vote in Presidential Election

There were few media reports of protests and clashes around the country, but so far no significant violence More

Sharks More Evolved than Previously Thought

The discovery could “profoundly affect our understanding of evolutionary history” More

Pakistan Military Asked to Protect Polio Workers

Request comes as authorities say a Taliban ban on vaccinations in 2012 and deadly attacks on anti-polio teams have prevented thousands of children from getting inoculated More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Google Buys Drone Companyi
|| 0:00:00
...
 
🔇
X
George Putic
April 15, 2014
In its latest purchase of high-tech companies, Google has acquired a manufacturer of solar-powered drones that can stay in the air almost indefinitely, relaying broadband Internet connection to remote areas. It is seen as yet another step in the U.S. based Web giant’s bid to bring Internet to the whole world. VOA’s George Putic reports.
Video

Video Google Buys Drone Company

In its latest purchase of high-tech companies, Google has acquired a manufacturer of solar-powered drones that can stay in the air almost indefinitely, relaying broadband Internet connection to remote areas. It is seen as yet another step in the U.S. based Web giant’s bid to bring Internet to the whole world. VOA’s George Putic reports.
Video

Video Ray Bonneville Sings the Blues and More on New CD

Singer/songwriter Ray Bonneville has released a new CD called “Easy Gone” with music that reflects his musical and personal journey from French-speaking Canada to his current home in Austin,Texas. The eclectic artist’s fan base extends from Texas to various parts of North America and Europe. VOA’s Greg Flakus reports from Austin.
Video

Video Millions Labor in Pakistan's Informal Economy

The World Bank says that in Pakistan, roughly 70 percent work in the so-called informal sector, a part of the economy that is unregulated and untaxed. VOA's Sharon Behn reports from Islamabad on how the informal sector impact's the Pakistani economy.
Video

Video Passover Celebrates Liberation from Bondage

Jewish people around the world are celebrating Passover, a commemoration of their liberation from slavery in Egypt more than 3,300 years ago. According to scripture, God helped the Jews, led by Moses, escape bondage in Egypt and cross the Red Sea into the desert. Zlatica Hoke reports that the story of the Jewish Exodus resonates with other people trying to escape slave-like conditions.
Video

Video Police Pursue Hate Crime Charges Against Kansas Shooting Suspect

Prosecutors are sifting through the evidence in the wake of Sunday’s shootings in a suburb of Kansas City, Missouri that left three people dead. A suspect in the shootings taken into custody is a white supremacist. As VOA’s Kane Farabaugh reports, he was well-known to law enforcement agencies and human rights groups alike.
Video

Video In Eastern Ukraine, Pro-unity Activists Emerge from Shadows

Amid the pro-Russian uprisings in eastern Ukraine, there is a large body of activists who support Ukrainian unity and reject Russian intervention. Their activities have remained largely underground, but they are preparing to take on their pro-Moscow opponents, as Henry Ridgwell reports from the eastern city of Donetsk.
Video

Video Basket Maker’s Skills Have World Reach

A prestigious craft show in the U.S. capital offers one-of-a-kind creations by more than 120 artists working in a variety of media. As VOA’s Julie Taboh reports from Washington, one artist lucky enough to be selected says sharing her skills with women overseas is just as significant.
Video

Video UN Report Urges Speedier Action to Avoid Climate Disaster

A new United Nations report says the world must switch from fossil fuels to cleaner energy sources to control the effects of climate change. The Intergovernmental Panel on Climate Change released the report (Sunday) following a meeting of scientists and government representatives in Berlin. The comprehensive review follows two recent IPCC reports that detail the certainty of climate change, its impacts and in this most recent report what to do about it. VOA’s Rosanne Skirble has the details.
AppleAndroid

World Currencies

EUR
USD
0.7217
JPY
USD
102.17
GBP
USD
0.5949
CAD
USD
1.1009
INR
USD
60.326

Rates may not be current.