Hostage to fuel subsidies<\/p>\n
While the government is stepping up its fuel-conservation
\nprograms and strengthening their implementation, it should
\ncontinue preparations for removing, once and for all, fuel
\nsubsidies next year, except for kerosene for household use.
\nOtherwise, the state budget will remain a "hostage" to these
\nwasteful spendings.<\/p>\n
Certainly, raising again fuel prices within the second
\nsemester, after the 29 percent increase in March, seems more than
\npolitically unacceptable. Such a drastic measure could also
\njeopardize macroeconomic stability.<\/p>\n
Even so, the next few months should be more than enough time
\nto make the necessary preparations for floating our domestic fuel
\nprices (except kerosene for household consumption) on
\ninternational prices, as we did in 2002.<\/p>\n
The government, therefore, should seize the momentum --
\ncreated by the current fiscal dilemma and the increasing public
\nawareness of the huge wasteful spending on fuel subsidies -- for
\nfurther conditioning the general public and the business
\ncommunity to fuel prices at their economic costs and for
\npreparing the institutional mechanism needed to protect the poor
\nfrom the inflationary impact of higher fuel prices.<\/p>\n
The most opportune time for the government to launch the new
\nfuel pricing policy would be the unveiling on Aug. 16 by
\nPresident Susilo Bambang Yudhoyono of the 2006 draft state budget
\nto the House of Representatives.<\/p>\n
The 2006 budget proposal should clearly stipulate the
\ngovernment's fuel pricing policy because, as the current fiscal
\nfiasco has shown, oil price volatility alone has created a chain
\nof impacts that require the revision of estimates not only of
\nfuel subsidies but also of state revenues, the rupiah exchange
\nrate, interest rates and social-safety net programs for poor
\npeople.<\/p>\n
Since the state budget is also a political communication
\nsystem conveying signals about behavior, prices, priorities,
\nintentions and commitments, it should address structural
\nimbalances between expectations and resources. The market would
\nbe comfortable with a more realistic budget, meaning that the
\ntotal amount of money the government would spend would be closely
\naligned to what is affordable over the current year.<\/p>\n
This clear signal in turn would improve policy predictability,
\nwhich is important for the efficient and effective implementation
\nof policies and programs.<\/p>\n
The market now is surely nervous about the looming fiscal
\ndebacle because oil prices since January have hovered at US$55 to
\n$60 a barrel and the rupiah exchange rate against the American
\ndollar averaged Rp 9,556 for the first six months, while the
\nbudgeted fuel subsidy of Rp 76.5 trillion (US$7.88) for this year
\nassumes an average oil price of $45, a rupiah exchange rate of Rp
\n9,300 and a total consumption of nearly 60 million kiloliters.<\/p>\n
Finance minister Jusuf Anwar estimated early this week that
\nfuel subsidies could reach as much as Rp 120 trillion and could
\npush up the budget deficit to over Rp 35 trillion or 1.3 percent
\nof the gross domestic product. Such a degree of fiscal deficit is
\nnot yet critical. However, allowing such wasteful subsidies --
\nmost of which are enjoyed by middle to high-income consumers-- to
\ntake up to 24 percent of total government spending, is fiscally
\nunsustainable and utterly unfair to the majority of people.<\/p>\n
The era of cheap oil has ended and will not likely return.
\nSelling oil at its economic costs would not only stop wasteful
\nsubsidy spending but also make the condition for conducive for
\ndeveloping the other energy resources richly available in the
\ncountry such as geothermal, natural gas, coal and hydropower.
\nPrice parity with our neighboring countries would also curb
\nexport smuggling.<\/p>\n
Proposing a totally new fuel pricing policy together with the
\nunveiling of the 2006 budget proposal by the President in his
\naddress on the eve of National Day would provide the government
\nwith adequate time to make all the necessary preparations for
\nmaking the social, economic and political climate conducive for
\nthe policy.<\/p>\n
Included among the preparations should be a more accurate
\ngeographical map of the poverty pockets throughout the country so
\nthat the distribution of aid for food, education, health and
\nrural infrastructure reaches its targets.<\/p>\n
The next few months would also be sufficient time to further
\nenlighten the general public and politicians on the great
\nbenefits to the whole nation if the huge spending on fuel
\nsubsidies could be reallocated for education, health and rural
\ninfrastructure development.<\/p>\n
Government dialogs with businesspeople on how they should
\nmanage with the new fuel pricing policy would help usher in the
\nnew policy without causing panic.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/hostage-to-fuel-subsidies-1447893297",
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"sponsor": "Okusi Associates",
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