The cost of fuel subsidies is set to rise sharply in 2011 after the DPR approved a government proposal to postpone indefinitely planned restrictions on the sale of subsidised fuel. In postponing the measures, the DPR cited fears of stoking unrest and fuelling inflation. The decision was made despite rising oil prices (dated Brent Blend) and a looming shortfall in domestic production. The budget currently assumes an average oil price of US$80/barrel this year, with Rp95.8trn (US$11bn) earmarked for fuel subsidies. However, social and political unrest that is spreading across the Middle East and North Africa have pushed up oil prices towards US$120/b in early April, while disruptions at major domestic production facilities reduced domestic oil output to 917,000 barrels/day in March, according to the country's oil and gas regulator, BPMIGAS, well short of the 970,000 b/d assumed by the 2011 budget.

The Ministry of Finance estimates that the fiscal deficit increases by around Rp800bn for every US$1 that the price of a barrel of oil exceeds the price set out in the budget. Officials have indicated that the oil price used in the budget may be revised upwards, with the country paying US$100/b in January and US$104/b in February on average for imported oil. Nevertheless, the finance minister, Agus Martowardojo, remains confident that the overall budget deficit will remain below the equivalent of 2% of GDP, with the rupiah's stronger exchange rate against the US dollar helping to offset the impact of higher international fuel prices.

Fuel subsidies mainly benefit Indonesia's wealthier car-owning households, introduce considerable potential liabilities into the public finances, and contradict the government's stated aim of reducing poverty and improving social welfare. According to the World Bank, the richest 10% of the population receive Rp135,000 (US$15.50) of fuel subsidy per head annually, while the poorest 10% receive only Rp23,000 per head. Nevertheless, the issue is politically explosive, and successive governments have failed to rein in wasteful spending on fuel subsidies.