Abstract
<jats:title>Abstract</jats:title> <jats:p>Fuel subsidies may seem pro-poor at first, but in practice they are highly regressive, benefiting the rich—who own cars and air conditioners—more than those in poverty who rely on bikes and fans. They are also expensive. Pre-1997, Indonesia’s fuel subsidy was larger than its education budget. After the crisis, the government had little choice but to roll out the subsidies when a spike in global oil prices created a looming fiscal crisis. The problem is, removing fuel subsidies had been a recipe for riots and bus burnings, in Indonesia as well as elsewhere. This chapter tells the story of how the Indonesian government enacted a necessary but unpopular policy. To compensate for those in poverty, the government launched a badly targeted, barely designed, emergency cash transfer program. But it worked. Interestingly, the infrastructure built to run this transfer program became the foundation for Indonesia’s future targeted programs.</jats:p>