Jakarta. Indonesia will save about $10 billion from the biggest overhaul of its decades-old fuel subsidy system, allowing the government to double spending on transportation, agriculture and public works, the energy minister said.
The finance ministry estimates that at least 120 trillion rupiah ($10 billion) in savings will be made this year, and the number will increase in coming years, said Energy and Mineral Resources Minister Sudirman Said in a Bloomberg Television interview with Angie Lau on Monday.
“What happened is shifting the subsidy from consumption into more productive spending,” the minister said.
“Because of the policy this year 2015, the public works, the transportation sector and the agriculture will double the capital expenditure budget.”
President Joko Widodo scrapped the subsidy for gasoline on Jan. 1 and capped the amount of aid for diesel, joining India and Malaysia in taking advantage of plunging oil prices to wean their nations off government subsidized fuel. Indonesia had been subsidizing fuel since the first oil price shock in the 1970s and kept prices at less than $0.20 per liter until 2005, according to a World Bank report published in March.
The government plans to double spending on transportation from last year, according to Said. The budget for public works such as roads, housing and irrigation will be more than twice the original allocation and more money will be set aside for farmers and the agriculture sector, he said. Building infrastructure for the oil and gas industry and electricity will be part of the government’s focus this year, he said.
Dismantling the subsidy program is a political hot potato — protests accompanied past price increases and riots spurred by soaring living costs helped oust dictator Suharto in 1998.
“The challenge would be of course the response from the public, but I have confidence that if we communicate well, then they will understand” and in the longer term it is going to be a much better budget structure, the minister said.