Indonesia may continue fuel subsidies in face of rising energy prices

The government of Indonesia was to remove a fuel subsidy allowing drivers to purchase fuel below current prices beginning with the Greater Jakarta area on April 1, 2011. The ban on cheap fuel would then be implemented across the rest of the country by 2014. However, the rising cost of inflation which reached a 21-month high in January 2011, lead analysts to believe that removing the ban would cause hardship among Indonesia’s population of 237 million. Finance Minister Agus Martowardojo said that a policy team will be looking into the merits of postponing the subsidy regulation plan. “This is a strategic issue that the government will monitor…we have to be ready to amend our budget, not at the present time but we will monitor the situation,” he said. Currently, the state budget has 8% or 95.9 trillion rupiah (US$10.6 billion) allocated for fuel subsidies for the year. The subsidy allows motorists to buy low-octane gas for 4,500 rupiah (51 US cents) instead of the unsubsidized gas which is currently at 7,950 rupiah (90 US cents) per liter. The national budget deficit for Indonesia is projected at 45 trillion rupiah (US$6.5 billion). The turmoil in the Arab countries and the threat of rising fuel prices could push this number up by 6 trillion rupiah (US$681 million). (February 26, 2011)