FINANCING DEVELOPMENT WITH FOSSIL FUEL SUBSIDIES

The report analyzes the reallocation of IDR 211 trillion (USD 15.6 billion) in fuel subsidy savings in Indonesia during 2015. It finds that funds were primarily redirected toward ministries' budgets, capital injections for state-owned enterprises (SOEs), and regional transfer funds. The study concludes that this shift from consumption to productive investment is aligned with the National Medium-Term Development Plan (RPJMN) 2015–2019, likely generating higher GDP and employment, and reducing the budget's vulnerability to international oil price volatility.

• The combination of fuel subsidy reforms and plummeting world oil prices in late 2014 and 2015 resulted in massive fiscal savings of IDR 211 trillion (US$ 15.6 billion), which represented over 10 per cent of total state expenditure.
• Budgetary savings were reallocated into three primary areas: an IDR 148 trillion (USD 10.1 billion) increase for ministries' budgets to support human and economic development, an IDR 61 trillion (USD 4.5 billion) capital injection to state-owned enterprises (SOEs) for infrastructure, and an IDR 34 trillion (USD 2.5 billion) increase in transfer funds for regions and villages.
• The reallocation is well aligned with the National Medium-Term Development Plan (RPJMN) 2015–2019, specifically regarding targets for infrastructure investment, the reduction of poor villages, and the eradication of extreme hunger and poverty.
• Input-output analysis suggests that reallocating funds to productive capacity (infrastructure and social assistance) is likely to generate higher GDP and more jobs than the previous consumption-based fuel subsidies, with the greatest benefits expected in services, manufacturing, construction, agriculture, and transport and communications.
• The 2015 reforms reduced the budget's fiscal risk and volatility; whereas previously a USD 1 increase in world oil prices would increase the deficit by IDR 2.3 trillion, under the revised budget it was projected to contribute a net positive surplus of IDR 1.3 trillion.
• The use of social assistance cards for programs like the Program Keluarga Harapan (PKH) and Kartu Indonesia Pintar (KIP) is supported by research as an effective targeting system to improve poverty alleviation and break intergenerational poverty.
• Civil society organizations expressed concerns that capital injections to SOEs were less beneficial for citizens than other reallocations, noting a lack of transparency and a bias toward big companies and private car use over public transport.
• The report identifies a missed opportunity to use subsidy savings to invest in clean energy alternatives, noting that Indonesia's power generation expansion remains heavily reliant on coal.

APA

Pradiptyo, R., Susamto, A., Wirotomo, A., Adisasmita, A., & Beaton, C. (2016). FINANCING DEVELOPMENT WITH FOSSIL FUEL SUBSIDIES. International Institute for Sustainable Development. https://www.iisd.org/sites/default/files/publications/financing-development-with-fossil-fuel-subsidies-indonesia.pdf

Chicago

Pradiptyo, Rimawan, Akbar Susamto, Abraham Wirotomo, Alvin Adisasmita, and Christopher Beaton. FINANCING DEVELOPMENT WITH FOSSIL FUEL SUBSIDIES. International Institute for Sustainable Development, 2016. https://www.iisd.org/sites/default/files/publications/financing-development-with-fossil-fuel-subsidies-indonesia.pdf.

Wikipedia

{{cite report |last1=Pradiptyo |first1=Rimawan |last2=Susamto |first2=Akbar |last3=Wirotomo |first3=Abraham |last4=Adisasmita |first4=Alvin |last5=Beaton |first5=Christopher |title=FINANCING DEVELOPMENT WITH FOSSIL FUEL SUBSIDIES |publisher=International Institute for Sustainable Development |date=May 2016 |url=https://www.iisd.org/sites/default/files/publications/financing-development-with-fossil-fuel-subsidies-indonesia.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{pradiptyo2016financing, author = {Pradiptyo, Rimawan and Susamto, Akbar and Wirotomo, Abraham and Adisasmita, Alvin and Beaton, Christopher}, title = {{FINANCING DEVELOPMENT WITH FOSSIL FUEL SUBSIDIES}}, institution = {International Institute for Sustainable Development}, year = {2016}, month = may, url = {https://www.iisd.org/sites/default/files/publications/financing-development-with-fossil-fuel-subsidies-indonesia.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }