In the midst of a global financial crisis, Indonesia enjoyed an impressive 6.5 percent growth rate in 2011. Yet, there have been some concerns over the sustainability of this growth in the long term.
One factor is related to the government’s policy on resource management, particularly the fuel subsidy policy.
With global oil prices exceeding US$100 per barrel, the Indonesian government’s finances will be stretched. Between 1990 and 2010, world energy consumption increased by 45 percent.
The process of economic rebalancing from West to East will potentially create energy supply problems and there is a strong indication that energy prices will continue increasing for the foreseeable future.
Indonesia’s decision on fuel subsidies will have economy-wide implications on growth through inflation rates and budget allocations to other important sectors including education, infrastructure development and poverty reduction programs. Data suggests that in 2011 fuel subsidies topped Rp 165 trillion ($18 billion).
To date, the Indonesian government and House of Representatives are still mulling the best option to deal with the increased demand for fuel and increased fuel prices.
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