Home Politics Indonesia Bracing For Violence Ahead of Subsidy Cuts

Indonesia Bracing For Violence Ahead of Subsidy Cuts

When you purchase through our sponsored links, we may earn a commission. By using this website you agree to our T&Cs.

Indonesia, South East Asia’s largest state, is bracing for riots, demonstrations, and possibly even violence ahead of a proposed fuel subsidy cut. Cheap fuel has long been enjoyed by Indonesia’s large but poor population. Now, efforts are underway to slowly reform the level of fuel subsidies offered. While the government is pledging increased aid in food and other areas, many Indonesians are now bracing for widespread protests.

Indonesia History

Having long been ruled by military strongman Suharto, Indonesia has traditionally needed these subsidies to ensure public support. Indonesia is one of the most diverse nations in the region. A vast archipelago of historically independent and semi-autonomous islands, the country is home to a wide range of religions and ethnic groups.

In order to maintain power Suharto implemented numerous social welfare programs to help lower costs. While Indonesia supports one of the world’s largest economies, the average person lives on about 2 dollars a day. And while the economy has been growing in recent years, the rate of growth has not been nearly enough to put a dent in poverty.

President Bambang has tried several times to reduce fuel subsidizes, only to back out due to pressure from civil society organizations. Interestingly, Bambang has scheduled the reductions to line up near May Day, a traditional day of protest in Indonesia. Police are expecting heavy protests and will be staffing up to 23,000 police officers to control crowds. While the aim may be to preserve peace, the likely outcome will be frequent clashes between protesters and police.

The government has no intention of doing away with subsidizes completely, the market shock would likely be too much for the country to bear. Instead, the idea is to slowly reduce subsidizes over time. This way markets and consumers will gradually grow used to the increased fees.

The government hopes to use the extra money raised from reducing subsidizes to develop the country’s infrastructure. Subsidies now cost the equivalent of 2.6 percent of the national GDP, a staggering sum for any country to absorb. While Indonesia has huge upside with its massive population, the country’s infrastructure is inadequate, to say the least. Many foreign investors have shied away from investing in Indonesia due to infrastructure deficiencies, but the government hopes to correct that in the future.

Indonesia also has a poor public transportation system. The city government, led by reformist leader “Jokowi” has recently pledged to build a subway system for Jakarta, Indonesia’s biggest city. Still, the move comes years too late, and Jakarta is now plagued by traffic jams that can often grind transportation to a halt. There are plans to start construction by the end of the year, and the Japanese government is helping to fund the subway project through soft loans. Still, whether or not Jakarta will actually build a world class subway system remains to be seen. Indonesia politics has long been plagued by corruption and inefficiency.

If Indonesia does not reform fast, the long isolated nation will quickly find itself swamped in corruption and inadequate infrastructure. For now the battle remains largely political: can the nation muster the political capital necessary to push through reform? Or will it continue to wallow in self defeat, cronyism, and inefficient business practices? Unless reformist leaders like Jokowi show the strength to push through their reforms, globalization may pass Indonesia by.

Our Editorial Standards

At ValueWalk, we’re committed to providing accurate, research-backed information. Our editors go above and beyond to ensure our content is trustworthy and transparent.

Want Financial Guidance Sent Straight to You?

  • Pop your email in the box, and you'll receive bi-weekly emails from ValueWalk.
  • We never send spam — only the latest financial news and guides to help you take charge of your financial future.