Recommendation by many economist that the Government had the courage to
increase price of subsidized. However so far the Government remained persistent
with their naïf decision not to increase price of subsidized oil. The Government’s
decision was reckoned to be more based on political consideration rather than
economic consideration.
The fact was that Indonesia’s deficit swelled to become USD 170 million
last January, against USD 155 million a moth ago. Such was the valid data
released by the Central Board of Statistics [BPS] recently. The main cause was
increased world’s oil price being imported and decreasing buyers demand for
export.
The gap in the trade balance was less than the projection of eight
economists contacted by Dow Jones Newswires with estimated median of USD 187.5
million. Based on BPS data, import of January increased by 6.82% against the
previous year to become USD 15.55 billion. The increased rate turned faster
compared to December last year which was only 0.22%.
Meanwhile export in the same period slumped by 1.24% to become USD 15.38
billion or down by 0.11% against December 2012. Flow of oil-gas import turned
heavier, coming to USD 4.04 billion in January. A year before according to BPS
data, the figure was only USD 2,99 billion.
Import of capital goods like factory machines lessened to become USD
2.63 billion in January against 2.90 billion the year before. It seemed
reasonable that economists kept urging the Government to increase price of
subsidized oil to put brakes on oil consumption. In the end, it would help to
reduce import of oil fuel.
Somehow the Government seemed to persist not to cut their subsidy
scheme. The political consequences was indisputably big, considering the
General election to be run next year. Deficit in current transaction also kept
suppressing current transaction, economists was quoted as saying and it kept
burdening Rupiah value.
Increased oil price could solve many problems, particularly four things,
i.e. to prevent unnecessary plan for oil consumption, and to minimize traffic
jams. Low price of subsidized oil stimulated unnecessary fuel consumption
causing energy subsidy to keep increasing.
The most disheartening thing was that oil subsidy advantaged foreigners.
With high disparity of price, local oil would be smuggled out of Indonesia
while the Government was in no condition to prevent it. Recently it was reported
that a case of oil smuggling to Malaysia was unveiled and was cracked down.
With Indonesia’s extremely vast area consisting of 17,000 islands of which 70%
of total area consisted of water, the police were helplessly unable to prevent
oil smuggling.
It was indeed most illogical if a nation who still had 28 million poor
people subsidized another nation who were more prosperous. By letting wide
disparity of price, in fact the Government tolerated smuggling to continue to
happened. By allowing oil smuggling to continuously happened, it was just like
giving subsidy to another nation.
One thing was certain: the low cost of oil caused extravagance in oil consumption.
The public were not trained to save energy as they felt that oil price was
still low. In 2011 and 2012 when price of oil was not increased consumption
soared up way above quota; and just like the years before, the Government just
had to increase quota for subsidized oil.
The conclusion was that it was most risky if the government let oil
shortage to happen. Unrest would burst out in gas stations if oil was not
available. In the end people would understand that it was better to have oil
available rather than oil being unavailable even if the price were high.
Somehow the Government choosed to subsidize oil price whatever the cost
and no matter how great the increase of oil consumption. The Government
persisted to secure supply of oil even at the cost of importing expensive oil.
People all over the place were lazy to walk or ride bikes, they would go on
motorcycle or car even for a short and simple trip. Truly a society spoiled by
cheap oil.
The further development was that increased oil consumption had made
deficit of trade balance to swell. Through January 2013, import of oil and gas
totaled USD 3.75 billion of equal to 9.5% of import realization through 2012
which came to USD 39.48 billion. In January 2012 [y o y ] growth of
crude oil importing had come to 34.7% or nearly double that of the previous
period. Import of oil also soared up which caused trade balance to be in
deficit.
Extravagance in oil consumption and smuggling made oil subsidy in 2012
to swell to Rp211.9 trillion and in this year 2013 the amount of budget was set
at Rp193.8 trillion. The Government and Partliament must be ready to increase
oil quota. In the end economy managers of this country remained to be trapped
in the same problem. To increase again and again quota of subsidized oil.
Supposedly the Government did not have to complain about tight state
budget and limited room for financing more pressing needs such as
infra-structure. By gradually reducing oil subsidy, the Government could at
least save budget to around Rp 100 trillion per year until arriving at the
point where subsidy would ne pressed to zero.
Price of oil was set on the basis of market mechanism. Price of oil
dropped by the time world’s oil price dropped, and on the contrary increased as
oil production increased. If oil subsidy were pressed to zero, the Government
could at least have additional fund of Rp 180 trillion. With fund of that
amount, the government would be able to build basic infra structure like roads
harbors and airports and powerhouses, reservoirs and irrigation for
agriculture.
With fund of that amount, the Government could increase public health
services, research and education and training for less skilled workers. The
number of workshops could be increased in all regencies and towns.
The Government must feel certain, and absolutely certain that to
increase oil price would bring more benefit than trouble. Traffic jams in big
cities, especially Jakarta could be minimized. As long as there was cheap
subsidized oil, way below marketpiece – even people with measly income would be
temped to buy a motorcar or motor cycle. The increasing number of private cars
and motorcycles was not merely due to limited public transportation but due to
low cost of oil.
Although Bank Indonesia had adopted the Loan to Value Policy,[LTV] which
was meant to increase DP for motor vehicle credit, they still believed that
demand for motor vehicles was still high as people’s purchasing power was at
best. So the policy to increase oil price became indispensable if the
Government wished to be free of head aches thinking of budget and fiscal health
The fact was that the Government had failed to lower oil consumption
through oil austerity plan. The Government’s policy never showed their result
afield. The policy of oil saving was only good in discourses, but a total
failure in reality.
In short, rather that continuing subsidy for oil which was evidently
off-target and caused nothing but extravagance and even triggered oil
smuggling, it was better for the Government to increase oil price. All
reasoning for increasing oil price was very strong. Flow of protest came from
those who were just imagining things.
The Government must not be paranoid or phobia affected for fear of
people’s demonstration stormed in. if the Government was skillful in explaining
the objective of oil price increase, the people could accept it. More over if
the Government explained that the surplus from oil price increase would be
returned to the public in the form of infra structure building.
Therefore there was no reason for the Government to hesitate in
increasing oil price. The people would be given direct aid, while inflation
rate could be stopped by increasing supply of goods and smoothening
distribution traffic. Economists, businessplayers and the middle class would
support increase of oil price. Moreover even the Parliament had confided the
policy if oil price increasing to the Government. So what are we wating for?
(SS)
Business News - March 13,2013
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