Political consensus on fuel<\/p>\n
We should commend the House of Representatives for approving
\non Tuesday the government's plan to increase domestic fuel prices
\nin light of concerted efforts to reduce fiscal deficit, increase
\nfuel conservation and reallocate the subsidy from the middle and
\ntop-income bracket directly to the poorest segment of the
\nsociety.<\/p>\n
The House plenary session agreed, through a vote, to limit the
\nfuel subsidy during the current fiscal year at Rp 89.2 trillion
\n(US$9 billion), thereby enabling the government to allocate
\ngreater resources for poverty alleviation and improvement of
\npublic services and basic infrastructure.<\/p>\n
The government has yet to set the amount of the increase to be
\nmade on Oct. 1 -- on top of the average 29 percent rise imposed
\nlast March -- but without the upcoming price increase, the total
\nfuel subsidy would balloon to almost Rp 130 trillion throughout
\nthis year.<\/p>\n
It is however, well advised for the government to realize that
\nthe conclusion of the national political consensus on the fuel
\nsubsidy allocation is only the first step within the most
\nchallenging and delicate process of biting the bullet.<\/p>\n
Economic reform, especially as tough as the fuel-price
\nincrease, is never easy because it involves taking away rents
\nthat have built up in the economic system.<\/p>\n
The painful measure, however economically rational it seems to
\nbe, will surely trigger massive street demonstrations which, if
\nnot well managed, could cause a social and political backlash at
\nthe expense of macroeconomic stability and set off \"panic rises\"
\nin the prices of goods.<\/p>\n
However, protest rallies would be short lived if the
\ngovernment goes all out to ensure a smooth phasing-in of the new
\nfuel price policy without an excessive inflationary impact on the
\neconomy.<\/p>\n
There are several conditions that will help smoothen the
\nimplementation of the painful measure.<\/p>\n
First of all, the government must ensure, through inter-
\nministerial coordination, that the Rp 4.8 trillion in
\ncompensation funds already allocated for distribution during the
\nlast quarter of this year reach their targeted 62 million poor
\npeople.<\/p>\n
The government should see to it that bus and trucking
\ncompanies increase their fares only in proportion to the upcoming
\nfuel-price rise. This will, however, be possible only if the
\ncompanies are given some fiscal incentives, and the government
\nreduces the regulatory and bureaucratic costs of their
\noperations.<\/p>\n
Any shortage of bus companies to transport revelers during the
\nupcoming Idul Fitri celebrations in early November could trigger
\nmassive social unrest. Likewise, any disruption in the
\ndistribution of goods, especially during the next three months
\nwhere inflationary pressures are seasonally very high, will set
\noff an inflation spiral to sabotage the economic stability.<\/p>\n
Manufacturing companies should also help maintain adequate
\nsupplies of essential commodities to prevent excessive price
\nhikes during the period of the panic reaction a few weeks after
\nthe fuel price increase.<\/p>\n
How good it would be for building public support for the bold
\nfuel measure, if several big oil smugglers, crude oil stealers
\nand embezzlers could be brought to justice within the next few
\nweeks as this would convey a clear and strong message that the
\ngovernment does act out of a real sense of urgency and crisis.<\/p>\n
The next quarter will surely be a tough period for all
\nbusinesses as they have to weather a general price increase and
\nface stronger demand from workers for pay increases at least to
\noffset the rising inflation. The government should help these
\ncompanies survive the turbulence without any massive layoffs.<\/p>\n
It is also most imperative that companies pay their workers
\nthe annual Idul Fitri bonus because failure to give this
\nsocially-sensitive gratuity could trigger nation-wide protest
\nrallies.<\/p>\n
Most important, too, is that the size of the fuel-price
\nincrease to be announced on Saturday should be significant enough
\nto avoid another wave of price hikes next year.<\/p>\n
University students who usually are the vanguard in street
\ndemonstrations against fuel price increases should realize that
\nprice subsidies are actually a future tax that should be borne by
\nthe next generation. The huge burden of the fuel subsidy we now
\nbear are the cumulative tax left behind by the previous
\ngovernments.<\/p>\n
Further postponing the long-delayed fuel-price increase will
\nonly add to the already heavy debt burdens of the next
\ngeneration. Are the young generation willing to inherit a
\nbankrupt economy?<\/p>",
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"sponsor": "Okusi Associates",
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