Energy Subsidies in Indonesia

Indonesia’s 2013 State Budget Act sets a quota of 46 million kiloliters of subsidized fuel for 2013, at a cost of Rp193.8 trillion (US$20.84 billion).

Unlike subsidies to fossil-fuel consumers, there is currently little hard data about the size or impacts of subsidies to fossil-fuel producers. The Global Subsidies Initiative’s new series, Fossil Fuels - At What Cost?, aims to rectify this situation by identifying and where possible quantifying these ‘producer subsidies’, using an internationally agreed definition of subsidy adopted by the World Trade Organization.

According to a recent note published in the World Bank's Economic Premise, agricultural spending in Indonesia should be directed at improving the provision of public services, rather than subsidizing private inputs.

On 3 September 2009, the Jakarta Post newspaper announced the latest development in Indonesia’s long struggle with energy subsidization: spending will increase, again. Two decisions seem to have been made in close succession.

The International Institute for Sustainable Development (IISD) is conducting a study on fossil fuel subsidies as part of its Global Subsidies Initiative (GSI). The GSI is dedicated to research and awareness building on government subsidies and their impacts on sustainable development. In cooperation with a growing international network of research and media partners, the GSI seeks to lay bare just what good or harm public subsidies are doing and to encourage public debate and awareness of the options that are available for reform.  IISD’s Trade Knowledge Network (TKN) is assisting with this call for proposals by reaching out to its partner organizations. TKN is a global collaboration of research institutions working on issues of trade, investment and sustainable development.

Three recent reports by the Global Subsidies Initiative (GSI) survey subsidy policies for biofuels in China, Malaysia and Indonesia. The reports marks a shift in focus for the GSI’s “Biofuels At What Cost?” series, from biofuel subsidy policies in OECD countries—which account for the lions share of global government support for biofuels—to that of certain developing countries that have stood poised to capitalize on heightened interest in these renewable fuels.

When Indonesia started subsidizing fuel in 1967, in the early days of President Suharto, the policy seemed to make sense given the staggering poverty at the time. Hyperinflation hit 650 percent, and the resulting public anger forced Founding Father President Sukarno to step down after 22 years of power. Suharto then introduced fuel subsidies as a means to keep poverty at bay.

A forthcoming report from the International Food Policy Research Institute analyzes protection to the agricultural sector in India, Indonesia, China and Vietnam.