Indonesia backs cuts to fuel subsidies

Updated On: Dec 15, 2010

Indonesia's Parliament has approved a politically sensitive plan to gradually reduce fuel subsidies for millions of car owners starting in 2011.

The plan is likely to cut 8.9% from state spending, or US$20.5 billion, said President Susilo Bambang Yudhoyono in August.

The plan aims to increase prices only for private car owners; in a country where half of the population lives on less than $2 a day, increases in fuel prices can significantly impact the poor.

Authorities are keen to avoid a repeat of the 2008 hike, where a 30% increase in fuel price lead to widespread rioting.

The significant reduction in public spending is likely to free up funds to improve infrastructure and sustain the momentum of Indonesia'sbooming economy. The easing of subsidies will also help the country attract foreign investment.

Indonesia Approves Phased-In Limits on Fuel Subsidies [Bloomberg, 14 Dec 2010]
Indonesian parliament backs fuel subsidy cut [Financial Times, 14 Dec 2010]

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