How to Respond When Prices Go Up: Objectives and options for fuel price adjustments in Indonesia (GSI)

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This policy brief by the Global Subsidies Initiative (GSI) analyzes Indonesia’s mechanisms for adjusting domestic fuel prices in response to fluctuating world prices, consistent with existing efforts to reform diesel and gasoline prices. Approaches to managing fuel prices include ensuring long-term fiscal sustainability, limiting fluctuations and minimizing shocks. There are options directly related to strengthening the fuel pricing mechanism, and strategies specifically to mitigate the impacts of higher fuel prices. This paper highlights some of these options, including price smoothing, ratcheting and installation of price floors and caps, setting out recommendations for Indonesia, in particular with respect to the ongoing LPG pricing reform. The policy brief is available to download on the GSI website.