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Jokowi signals imminent subsidized fuel price increase
Jakarta Globe - November 5, 2014
"Over the past five years, Rp 714.5 trillion [$59 billion] from the state budget have gone toward fuel subsidies," Joko said at the start of a cabinet meeting at the State Palace in Jakarta. "Our spending for health and infrastructure is way below that."
Joko said that during this same period, only Rp 202.6 trillion was allotted for health, and Rp 577 trillion for infrastructure development. Citing the results of a study, he added that 71 percent of the fuel subsidy was enjoyed by the middle- and high-income earners.
His statement came a day after he launched the Indonesia Health Card, Indonesia Smart Card and Prosperous Family Card programs – social safety nets that observers say are intended to take the sting out of the spike in inflation spurred by the fuel price hike.
The president has not confirmed whether the government will indeed proceed with its plan, but his more outspoken deputy, Vice President Jusuf Kalla, said on Monday that the price would be raised by the end of this month, pending the distribution of the three cards to low-income families.
Chief economics minister Sofyan Djalil said after Tuesday's cabinet meeting that the government would announce the final decision concerning the planned price hike later this month.
Joko's inclination toward increasing the subsidized fuel prices in order to lessen the subsidy's burden on the state budget appears to go against the stance adopted by his Indonesian Democratic Party of Struggle, or PDI-P.
The PDI-P, which has long adopted a populist bent, resisted all attempts by Joko's predecessor, Susilo Bambang Yudhoyono, to raise subsidized fuel prices or slash the subsidy spending. PDI-P legislators at the House of Representatives have reiterated their opposition to the planned hike.
"Why does J.K. [Kalla] seem to be so adamant about increasing fuel prices?" Effendi Simbolon, who is in charge of the party's energy policy, said on Tuesday, blaming the plan on the vice president.
He accused Kalla of attempting to liberalize Indonesia's energy sector through the planned price increase. "Is this part of the liberalization agenda? We want to focus on handling energy issues, but before we even start they're trying to liberalize it," Effendi said.
He added that subsidy costs could be suppressed through other means, such as introducing lower-octane fuel for public transportation vehicles, or through the dissolution or better management of Petral, a Singapore-based crude oil importer unit of Indonesian state energy company Pertamina. Petral has long been a bogey for the PDI-P, with the party leveling vague accusations of it being involved in the country's so-called "oil and gas mafia."
Rieke Diah Pitaloka, another PDI-P legislator known for her populist take on various issues, blamed the Yudhoyono administration for racking up a current-account deficit and pushing Joko into raising prices – despite the role that she and other PDI-P legislators played in preventing Yudhoyono from instating subsidy cuts during his own term, when he warned that the current-account balance was moving into dangerous territory because of the rising cost of fuel imports.
"The condition of the state coffers [left by Yudhoyono] must be explained transparently to the public. That is so that Joko's government can continue unburdened by past policies," Rieke said. "Only 14.4 percent of [the 2014 state budget] is allocated for fuel subsidies. You can't call that the cause of the state budget deficit," she added.
Four other parties in the ruling coalition have voiced their support for the planned fuel price hike, while most parties in the opposition Red-White coalition, or KMP, have taken the same line as the PDI-P in rejecting the idea. But the biggest party in the KMP, the Golkar Party, has thrown its weight behind the policy.
Joko does not need House approval to raise fuel prices. Pertamina estimates that Indonesia will finish its quota this year of 46 million kiloliters of subsidized fuel well before the end of the year.
"I think the quota will not be enough for the remaining two months even with any [capping] policy," Pertamina marketing director Hanung Budya said last week. "The price disparity must be narrowed," he added.
The price hike, if it happens this month, comes at a time when global oil prices have hit four-year lows. Brent crude touched $82 a barrel on Tuesday, while the 2014 state budget bases the fuel subsidy allocation on the assumed level of $105 per barrel. That could make the hike more palatable to Indonesian motorists, says energy observer Pri Agung Rakhmanto.
"The gap is narrowing now between prices of subsidized and non-subsidized fuel," said Pri, the executive director of the ReforMiner Institute, an energy think tank. "That will make it easier to encourage vehicle owners to shift to using non-subsidized fuel."
He said firm action was needed to reduces Indonesia's dependence on artificially cheap fuel, with the money saved to be allocated to more productive uses, such as infrastructure development and social welfare programs.
"[Joko] touted the notion of a 'mental revolution' in his campaign. So why not do that?" Pri said. "The government must take firm action. Raise the fuel price significantly enough to encourage changes in consumption patterns. Do the mental revolution."
Previous price increases at the pump have had a significant contribution to inflation, with public transportation and freight costs going up and being passed on to consumers. The impending hike, say experts, should avoid such a scenario by exempting certain groups from higher fuel prices.
"The freight industry must be excluded [from the hike] in order to prevent increases in prices of goods, and likewise the public transportation industry, to prevent increases in transportation fares," said Darmaningtyas, the executive director of the Institute of Transportation Studies.
He said that if previous governments had done more to develop better public transportation systems, the issue of fuel price increases would not have been such a loaded one. Ninety-two percent of subsidized fuel in 2013 was used in privately owned vehicles, according to business research company Katadata.
"There should have been serious efforts to revamp public transportation before they even talked about increasing fuel prices," Darmaningtyas said. "But policy makers don't take public transportation, so they don't understand the problems with it and why people opt to drive their own vehicles instead."
Source: http://thejakartaglobe.beritasatu.com/news/jokowi-signals-imminent-fuel-hike/.
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