The increase in mandatory use of palm oil in biodiesel was set by the Indonesian government in response to the country's wide current account deficit. The new biodiesel policy was one of the points that was mentioned in the government's August policy package and has been in force since September 2013. The current account deficit is caused by a large deficit in the country's oil and gas sector as Indonesia's demand for fuels has grown robustly in recent years (one of the side effects of strong economic growth). Therefore, the government took several steps to reduce imports of oil. Previously, the government had raised prices of subsidized fuels (in June 2013). The price of petrol went up 44 percent, while the diesel price was raised 22 percent. However, despite the price hike, Indonesia's fuel prices remain among the world's cheapest, supported by generous government subsidies.

Dadan Kusdiana, Director of Bioenergy at the Ministry of Energy and Mineral Resources, said that Indonesia's new biodiesel policy helped to save a total of USD $161.7 million in foreign exchange reserves in September and October 2013. In September, the central bank's foreign exchange reserves rose 2.9 percent to USD $95.7 billion and in October it rose 1.4 percent to USD $97.0 billion.

Once being the 'money-maker' for the authoritarian Suharto regime, crude oil production has declined steeply in Indonesia since the 1990s due to a lack of exploration and investments, thus turning the country into a net oil importer for almost a decade. As regards palm oil, Indonesia is currently the largest producer and exporter worldwide.

Starting from 27 November 2013, the European Commission imposes controversial punitive anti-dumping duties on biodiesel imports from Indonesia in order to protect producers in the Eurozone. These duties, 18.9 percent for Indonesia, are valid for five years.

Indonesia's Palm Oil Production and Export:

     2008    2009    2010    2011    2012    2013¹
(million metric tonnes)
   19.2    19.4    21.8    23.5    26.5    28.0
(million metric tonnes)
   14.2    15.5    15.6    16.5    18.1    21.0
(in USD$ billion)
   15.6    10.0    16.4    20.2    21.6       -

¹ indicates forecast
Sources: Food and Agriculture Organization of the United Nations, Indonesian Palm Oil Producers Association (Gapki) and Indonesian Ministry of Agriculture

Further Reading:

Government of Indonesia Serious to Develop Palm-Based Biodiesel
Indonesia May Become the World's Largest Oil Importer by 2018
 Palm Oil in Indonesia