Navigating policy dilemmas in fuel-subsidy reductions: learning from Indonesia's experiences

Fuel subsidies are policy instruments that have historically been used to assist the poor in affording energy for essential household activities. The subventions have, however, been the subject of considerable criticism that they in practice exacerbate inequalities and enrich fuel producers and well-to-do households that do not require support from fuel subsidies. When efforts to resolve tensions across different stakeholder needs lead to unintended, undesirable, and differential impacts across groups and across different time horizons, a policy dilemma emerges. Actors looking to understand or inform fuel-subsidy reform face an analytical challenge in knowing how to effectively frame important interlinkages and identify strategies for intervention. This policy brief responds to this analytical challenge in understanding interlinkages that frame these policy dilemmas by using John Kingdon's multiple-policy stream framework to analyze how the Indonesian government navigated its energy subsidy reform policy dilemma during 1998-2016. It shares lessons on how the country has managed this situation and discusses implications for further domestic reforms. The Indonesian experience may provide useful insights and lessons for other developing countries looking to navigate the multiple interlinkages across fuel-subsidy dilemmas.

Automated summary

Fuel subsidies have historically been used to assist the poor in affording energy for essential household activities, but they have been criticized for exacerbating inequalities and benefiting fuel producers and wealthy households. Efforts to resolve tensions across stakeholders can lead to unintended impacts, creating a policy dilemma. The Indonesian experience of navigating energy subsidy reform may provide insights for other developing countries facing similar interlinkages in fuel-subsidy dilemmas.