In Reply to: Indonesia To Raise Domestic Oil Prices posted by MisterSteve on Saturday, 24. September 2005 at 02:27 Bali Time:
It's about time someone had the balls to reduce the fuel subsidy. It's been benefitting the rich at the expense of the poor too long. Not that SBY has much choice, really. The alternative is for the government to go broke.
It's not new news. The papers have been discussing the issue for at least three months. I read at least a month ago that the rises were going to be in October, and there's been plenty of articles discussing the timing of the rise. No doubt there are some people who will be surprised, but all my Indonesian friends have been expecting it, and it seems to be met with a whimper, rather than a bang.
The current system isn't working. Companies pay 5000rp a litre for fuel that poor people can buy for 700rp. So guess what happens? The poor people sell their fuel to the companies for 3000rp. And because of the huge gap in prices of petrol in Indonesia, as opposed to Singapore and Malaysia, smuggling is profitable, and therefore rife.
The plan is to reduce the subsidy on petrol and diesel, but keep parrafin (mostly used for cooking and some motorbikes) cheap. Funds that would have gone to the fuel subsidy will go towards health care and direct payments to the poorest Indonesians (which started a few weeks ago). In theory, it's a sound plan. In practice, it should be closely monitored.
Goods with a large transport component in the price will rise. Poor people tend to buy produce that hasn't traveled far, so it won't affect them as much as middle and upper-class Indonesians. An increase in the price of fertilisers made from oil will push up the price of basic foods slightly.
There have already been protests. Yesterday, students commandeered a fuel truck and drove it to a government office. Students are hit particularly hard, since they are middle-class consumers, but don't earn middle-class incomes yet. And they have plenty of spare time for protests. These are unlikely to affect tourists, except by accident, and will be directed more at Jakarta than Bali.
The tragedy is that if the price boom in worldwide oil prices happened at any other time in history, Indonesia would have been laughing. They've only been a net importer for about 18 months. And all the oil revenue in the last fifty years has pretty much been squandered, mainly by Suharto and his cronies.
And since people have been upset at the lack of availability of fuel, putting up the price may do more to avert riots that to start them, because the supplies will start rolling again and people will (hopefully) be trying to cut down on their fuel usage.
Still, it's been a while since Indonesia had a decent riot, and this might give them an excuse to blow off a bit of steam. It's hard to see how they can get upset about the reduction of a subsidy that they are basically paying to themselves (they pay tax, tax pays for fuel, they buy cheap fuel). If the industry was privatised, they'd have been paying around three times as much for fuel all their lives (plus the flow-on of costs into other products).
If SBY can reduce the subsidy and survive a full term as president, that will be a hell of an effort. No-one else has managed it.