Finance Minister Sri Mulyani Indrawati told reporters her cabinet had exhausted “every other fiscal lever” before accepting the subsidy could not be sustained. That blunt admission, made on 3 September, lays bare the math that forced Indonesia’s hand. The energy-subsidy bill had tripled this year to 502 trillion rupiah — $34 billion. Crude oil averaged $70 a barrel in the 2021 budget. Now it trades above $90. The rupiah has slipped 6 percent against the dollar since January. Together those shifts added the equivalent of 1.7 percent of GDP to the energy-support tab.
President Joko Widodo ordered the increase on Saturday. Subsidised fuel prices rose roughly 30 percent. Pertalite-90 gasoline jumped from 7,650 rupiah (51 US cents) to 10,000 rupiah (67 cents) per litre. Diesel went from 5,150 rupiah (35 cents) to 6,800 rupiah (46 cents). The freeze had lasted eight years. Pump prices had been among the world’s lowest.
The cabinet capped the fuel subsidy at 200 trillion rupiah for 2022. The remaining 300 trillion rupiah gets redirected to targeted social programmes. “We either cut the subsidy or cut development spending on schools, hospitals and roads,” Indrawati said. The choice was that stark.
News of the hike leaked on 30 August. Queues formed immediately. Kilometre-long lines snaked 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. Sporadic scuffles broke out in Bandung and Makassar. Police were deployed after attendants ran out of stock.
The move trims a ballooning bill. It does not solve the structural problem. Indonesia’s fuel subsidies have long distorted the economy, encouraging consumption and draining state coffers. Global oil and gas prices surged this year. The war in Ukraine tightened supplies. Jakarta’s 2021 budget assumed $70 crude. Reality overshot that by nearly 30 percent. The rupiah’s slide compounded the pain. Every dollar of imported fuel cost more in local currency.
Indrawati said the cabinet had run out of other options. That is the language of a government backed into a corner. No finance minister chooses to raise fuel prices weeks before the G20 summit, when global attention is on Jakarta. No president wants to anger millions of voters. But 502 trillion rupiah is not a number that bends. It equals roughly 3 percent of GDP. The subsidy alone was swallowing money meant for schools, hospitals and roads.
The social programmes get 300 trillion rupiah now. That is a bet. If the cash reaches the poor quickly, the political damage may be containable. If it does not, the queues and scuffles in Bandung and Makassar could spread. Arif Kurniawan’s 25,000 rupiah saving — one day’s food for his children — is gone. He will pay the new price like everyone else.
The eight-year freeze is over. The world’s lowest pump prices are history. Indonesia has joined the ranks of countries that blinked first in the face of surging energy costs. The rupiah may slide further. Crude could stay above $90. The capped subsidy of 200 trillion rupiah for 2022 looks like a ceiling that will be tested. If prices keep climbing, Jakarta may have to choose again between the subsidy and the schools.
