Indonesia raised subsidised fuel prices by roughly 30 percent on Saturday, 3 September, ending an eight-year freeze that had allowed pump prices to remain among the world’s lowest. The increase, ordered by President Joko Widodo, lifts a litre of Pertamina’s Pertalite-90 gasoline from 7,650 rupiah (51 US cents) to 10,000 rupiah (67 cents) and diesel from 5,150 rupiah (35 cents) to 6,800 rupiah (46 cents).
The move trims the government’s ballooning energy-subsidy bill, which had already tripled to 502 trillion rupiah ($34 billion) this year as global oil and gas prices surged. Finance Minister Sri Mulyani Indrawati told reporters the cabinet had exhausted “every other fiscal lever” before accepting that the subsidy could not be sustained.
Crude prices that averaged $70 a barrel in the 2021 budget are now trading above $90, while the rupiah has slipped 6 percent against the dollar since January. Together the shifts added the equivalent of 1.7 percent of GDP to the energy-support tab. “We either cut the subsidy or cut development spending on schools, hospitals and roads,” she said on 3 September.
Cabinet opted to cap the fuel subsidy at 200 trillion rupiah for 2022 and redirect the remaining 300 trillion to targeted social programmes. News that a hike was imminent leaked on 30 August, prompting kilometre-long queues at pumps across Java and Sumatra.
In Jakarta’s Tanah Abang district, motorcycle-taxi driver Arif Kurniawan waited three hours overnight to save 25,000 rupiah on a full tank. “That is one day’s food for my children,” he said. By Saturday afternoon most stations had switched to the new price, but sporadic scuffles were reported in Bandung and Makassar where police were deployed after attendants ran out of subsidised fuel.
Student groups have called for protests on 6 September, recalling the 1998 fuel riots that helped bring down the Suharto regime. To dampen the shock, the government will transfer 150,000 rupiah ($10) a month to 20.6 million poor families through December, reallocating 12.4 trillion rupiah from the subsidy budget. An additional 9.6 trillion rupiah will top up wages for 16 million low-income workers, while 2.17 trillion rupiah will cover fuel vouchers for ojek (motorcycle taxi) drivers and small fishermen.
“We hope this can reduce the pressure of rising prices and help reduce poverty,” Indrawati said. Bank Indonesia predicts inflation will jump from August’s 4.69 percent to above 6 percent by year-end, still below the 12 percent registered after the last hike in 2014.
Economists warn the subsidy cut will ripple through transport, food and manufacturing costs. “Every 10 percent rise in fuel adds roughly 1 percentage point to headline inflation,” said Josua Pardede, chief economist at Bank Permata. The central bank has signalled it may raise its 3.75 percent benchmark rate for the first time since 2018 when it meets on 20 September.
Investors welcomed the fiscal tightening: the rupiah strengthened 0.8 percent against the dollar on Monday, and the main stock index added 1.2 percent. Yet the politics remain fraught.
Opposition politician Mardani Ali Sera accused the government of “punishing the poor for budget mismanagement” and promised to amplify street rallies next week. The price adjustment removes one of the last cheap-fuel bastions in Asia, but leaves Indonesia’s long-standing subsidy culture intact. Ministries must now draft a permanent formula linking domestic pump prices to global markets, a reform promised, and postponed, since 2017.
Until that mechanism is in place, every swing in crude futures will test both the treasury and the president’s resolve.
