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Indonesia’s Stability Threatened By Energy Subsidies

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Indonesia’s status as a smart foreign investment may be in jeopardy, according to a report from The Australian this week. The country’s record of economic stability, which in recent months had seemed to trump all other developing nations, is now threatened by fuel and electricity subsidies.

Last year, the Indonesian government overshot its subsidies by a long-shot, spending 306 trillion rupiahs (or about $30.7 billion) after budgeting only 210 trillion.

This year, the government budgeted one-sixth of its outlays for energy subsidies, or 275 trillion rupiah–an estimate that The Australian calls “hallucinatory,” and one that Indonesia’s own finance minister has already pronounced too low. 

President Susilo Bamban Yudhoyono, faced with the choice of cutting subsidies and losing popular support–potentially recreating the riotous civil disorder following subsidy cuts in 1997 and 1998–or maintaining subsidies and straining the budget further, seems to have opted for the later, much to the chagrin of his finance ministry, and the concern of foreign investors. Infrastructural relief may have to wait until 2014 when Yudhoyono, who is serving his second and final term as President, will be replaced.

 

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