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ccording to the Finance Ministry, spending on fuel and electricity subsidies could reach over US$32 billion this year.

This figure could well exceed $90 billion by 2030 as the demand for energy is expected to triple by then. As Indonesia is becoming one of the world's major economies, it is imperative that a substantial part of our budget is not tied-up in fuel subsidies but put into social projects and infrastructure.

Other emerging countries such as China have proven how well-targeted investment into the population's education significantly boosts economic growth.

Such investments will create jobs in the short term and ensure a healthy foundation for the country's rising prosperity in the long term. Heavy fuel subsidies address today's challenges, but clearly fail to solve the fundamental problems of tomorrow.

In that regard, the government is making a sound call by cutting the fuel subsidies in an effort to free up more money for investment. Now, the main concern is the execution. The decision makers ought to vote for adequate reforms and put structures in place that guarantee an efficient roll out plan with responsibility and accountability.

To protect the underprivileged from higher fuel prices, President Susilo Bambang Yudhoyono recently proposed a temporary direct cash assistance program (BLT). Such a relief program requires stringent preparation, deployment and monitoring mechanisms to be successful. There are many questions raised
in regards to the effectiveness and efficiency of the cash distribution program.

How would the government account for price increases in other goods?

How much is enough? How would the relief differ between different demographics?

How long will the program last? Would the cash actually be used efficiently by the recipients?

Would the program actually prevent protests? How would the government educate society?

Taking lessons from fuel subsidy reductions enacted in other regions of the world, the government could also explore the issuance of smart cards or coupons in addition to cash relief. Implemented in Malaysia, the smart card program allowed users to buy a limited amount of fuel at a reduced price.

In the Philippines, the government successfully reduced fuel subsidy to zero by liberalizing the oil sector and de-politicizing the price setting of fuels.

These experiences with fuel subsidy reform underscore the importance of planning, persistence and a good communication plan in achieving a successful outcome.

Mathias Huber, Melvany Kasih, Franklin Ngamga, Ananya Sen
Cambridge, UK