Indonesia Cuts Fuel Subsidies, Risking Social Unrest

Supraman is concerned about the price of gasoline. The 32-year-old Jakarta bakery owner uses his motorcycle to make restaurant deliveries every day. On June 22, Indonesia’s government cut fuel subsidies for the first time since 2008, effectively raising gas prices 44 percent and diesel prices 22 percent. “Food, clothes, everything gets somewhere using fuel, so the prices of everything will definitely rise,” says Supraman, who like many Indonesians uses only one name.

As smoke from forest and plantation fires on the Indonesian island of Sumatra billows over southeast Asia, government officials in Jakarta have their eyes on another potential conflagration. After contemplating the idea for years, President Susilo Bambang Yudhoyono is cutting subsidies that threatened to swell to $30 billion in 2013, pushing the budget deficit well beyond the legal limit of 3 percent of gross domestic product. In doing so, he risks sparking street protests and inflation. In the 1997 Asian financial crisis, the then three-decade-old Suharto regime cut subsidies under pressure from the International Monetary Fund; the government collapsed a year later in the face of a popular revolt.