At the end of 2014, Indonesia introduced major reforms to its fossil fuel subsidies, removing subsidies to gasoline and introducing a “fixed” subsidy for diesel. At the same time, world oil prices plummeted. Together, these changes led to massive fiscal savings, equal to over 10 per cent of state expenditure. This report by the International Institute for Sustainable Development (IISD) examines how these savings have been reallocated and whether the new expenditure is doing a better job for Indonesia’s development than subsidies. The report concludes that fuel subsidy reform and reallocation in Indonesia have been a major step forward in improving public expenditure.
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