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

Video Miami Cubans Divided on New US Policy

While older, more conservative Cuban Americans have promoted anti-Castro political movement for years, younger generations say economically, it is time for change More

2014 Sees Dramatic Uptick in Boko Haram Abductions

Militants suspected in latest mass kidnapping of over 100 people in Gumsuri, Nigeria on Sunday More

Video Cuba Deal Is Major Victory for Pope

Role of Francis hailed throughout US, Latin America - though some Cuban-American Catholics have mixed feelings More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Sudan School Becomes Target of Aerial Attacksi
X
December 19, 2014 12:45 AM
The school dropout rate is at an all-time high in Sudan's South Kordofan state because many schools have been destroyed during the three-year civil war between the government and SPLA-N rebel forces. Adam Bailes visited Sudan's Nuba Mountains' region and reports many children are simply too scared to go to school
Video

Video Sudan School Becomes Target of Aerial Attacks

The school dropout rate is at an all-time high in Sudan's South Kordofan state because many schools have been destroyed during the three-year civil war between the government and SPLA-N rebel forces. Adam Bailes visited Sudan's Nuba Mountains' region and reports many children are simply too scared to go to school
Video

Video VOA Reporter Tours Devastated Peshawar School

Islamist militants wearing military uniforms and strapped with explosives attacked a military run school Tuesday in the northwestern Pakistani city of Peshawar. At least 141 people were killed in the horrific attack, most of them young students. VOA reporter Ayaz Gul visited the devastated school and attended the funeral of the principal who courageously tried to save her students from the deadly attack.
Video

Video Nigerians Fleeing Boko Haram Languish in Camp Near Capital

In its five-year effort to impose Islamic law in northeastern Nigeria, the Boko Haram extremist group has killed thousands of people and forced hundreds of thousands to flee. Some of those who ran for their lives now live in squalor on the edges of the capital, Abuja. Chris Stein reports for VOA.
Video

Video Putin Says Russian Economy Will Emerge Stronger

Russian President Vladimir Putin has said his country's sinking economy will not only recover but also become stronger, despite falling oil prices and Western sanctions over Ukraine. VOA's Daniel Schearf reports.
Video

Video Detained Turkish Journalists Follow Teachings of US-Based Preacher

The Turkish government’s jailing of critical journalists has sparked international condemnation and is being seen as an effort to undermine the followers of an ailing Turkish preacher based in the United States. VOA religion reporter Jerome Socolovsky has more.
Video

Video ‘Anti-Islamization’ Marches Increase Tensions In Germany

Anti-immigrant rallies in Germany have been building in recent weeks, peaking Monday night in the city of Dresden where tens of thousands of people turned out to demonstrate against what they call the ‘Islamization’ of the West. Germany has offered asylum to more Syrian refugees than any other country, and this appears to have set off the protests. Henry Ridgwell reports from London.
Video

Video Aceh Rebuilt Decade After Tsunami, But Scars Remain

On December 26, 2004 there was an earthquake in the Indian Ocean so powerful it caused the Earth’s axis to wobble a few centimeters. Onshore on the island of Sumatra, the resulting tsunami was devastating. A decade later, VOA Correspondent Steve Herman reports from Banda Aceh, Indonesia, where although there is little remaining evidence of the physical devastation, the psychological scars among survivors remain.
Video

Video Refugees Living in Kenya Long for Peace in the Home Countries

Kenya is host to numerous refugees seeking safe haven from conflict. Immigrants from Somalia face challenges in their new lives in Kenya. Ahead of International Migrants Day (December 18) Lenny Ruvaga has more for VOA News from the Kenyan capital.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8143
JPY
USD
119.23
GBP
USD
0.6390
CAD
USD
1.1596
INR
USD
63.304

Rates may not be current.