The Numbers: Adding Up Indonesia’s Fuel Subsidy Costs By I Made Sentana Cutting fuel subsidies is one of the biggest decisions facing Indonesia’s new President, Joko Widodo, elected on a populist platform in one of the most closely fought elections ever in Southeast Asia’s largest economy. People familiar with the plan say Mr. Widodo’s administration is considering raising the price of subsidized gasoline and diesel fuel by up to 3,000 rupiah a liter, which could save the government up to 10 trillion rupiah ($828 million) for the remainder of this year and a whopping 141 trillion in 2015. It’s uncertain when the fuel price increase will happen, but the new Coordinating Minister for the Economy, Sofyan Djalil, said last week that the government would seek “to correct” the fuel subsidy system before the end of the year. $22.8 billion (276 trillion rupiah) The estimated cost of fuel subsidies next year, according to the state budget. The total amount allocated to energy subsidies, including fuel, is estimated to hit 363.5 trillion rupiah ($31 billion), roughly 18% of total spending. Fuel subsidies, a legacy of the more than 30-year rule of former President Suharto, have long presented a quandary for Indonesia’s leaders. Initiated as a means of stabilizing prices and assisting the poor, the subsidies have increasingly been seen as a gift to the growing middle class that uses cheap fuel to power its cars and motorcycles. If Mr. Widodo doesn’t rein them in, he will have little money to add new infrastructure or meet campaign pledges to improve health care or education. An election sticker with the image new Indonesian President Joko Widodo is seen on a motorcycle gas tank at a state-owned Pertamina petrol station in Jakarta on Oct. 31. Reuters $132 billion (1,600 trillion rupiah) The amount Indonesia spent on fuel subsidies over the past five years. At the same time, the government spent only 1,200 trillion rupiah on infrastructure and social welfare programs combined, said the new Minister of Energy and Mineral Resources, Sudirman Said. Raising fuel prices has bred riots in the past and people close to the government say officials are preparing a public service campaign to explain to citizens that the money saved from cutting back spending on subsidies will allow the government to shifting its budget to more productive programs that eventually will benefit the poor. $43 Billion If the government gradually reduces the amount it puts toward fuel subsidies over the next four years, PT Ashmore Asset Management Indonesia, an Indonesian unit of London-listed fund manager Ashmore, estimates that it could save $43 billion in total. Assuming 50% of those savings go toward infrastructure development, Indonesia could add more than 2,000 kilometers of toll roads or 2.5 times the current number of toll roads in the country. It could also put those savings toward other types of infrastructure projects, such as ports and railways, a lack of which is often cited as one of the biggest hindrances to investment. $0.23 Subsidy cuts will spark inflation, raising the price of daily goods, such as food and transportation. Currently, the average cost of a one-way ticket on Jakarta public transportation, according to a survey by GoEuro, a Berlin-based travel search website. In comparison, an average taxi journey in Jakarta costs $3.57 for every 10km, while a ride with ridesharing service Uber costs slightly more at $3.77 per 10km.
Posted on: Sun, 02 Nov 2014 23:14:12 +0000
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