Preparing public for higher fuel prices<\/p>\n
Vincent Lingga, Jakarta<\/p>\n
While economic rationale was initially the main demand arising
\nfrom the plan to increase fuel prices, discussion is now focused
\non how to make the painful measure politically acceptable to the
\nHouse of Representatives and palatable to the general public.<\/p>\n
Virtually no one will argue against the economic necessity to
\ncut the huge fuel subsidies, most (80 percent) of which have been
\nenjoyed by people of the middle- and high-income brackets.<\/p>\n
Fuel subsidies, which could explode to over Rp 70 trillion
\n(US$7.8 billion) this year, also cut into the budget for poverty
\nalleviation and other social safety net programs, and threaten
\nfiscal sustainability.<\/p>\n
Even more damaging is that subsidies encourage gross
\ninefficiency in fuel use -- while the country has now become a
\nnet oil importer -- hinder the development of alternative energy
\nand make export smuggling a highly lucrative business.<\/p>\n
However, as the government experienced in early 2003, what had
\nbeen established as economically rational and approved through a
\nnational political consensus at the House was not automatically
\naccepted by the general public.<\/p>\n
The government in late January, 2003 was forced to scale back
\nthe fuel price hikes it introduced early that month due to a
\nmassive wave of demonstrations, thereby damaging its
\npolicymaking credibility.<\/p>\n
Public acceptance, which is the key to the effectiveness of
\nthe upcoming fuel-price increase to achieve its objectives, will
\ndepend on whether the reform can be promoted as fair.<\/p>\n
Therefore, the bold move to slash fuel subsidies, which is
\nexpected before the end of next month, cannot be conducted as a
\nsingle, isolated measure. It must be introduced in a package with
\nother programs to ensure fairness in sharing the burden and to
\nbuild a conducive environment for rational public opinion. .<\/p>\n
And the price increase should not be so steep as to unduly
\nshock the economy.<\/p>\n
This is what the government has been preparing for the last
\nfew weeks, though the process has been rather slow and haphazard.<\/p>\n
The government is trying to establish fairness through the
\nprotection of the poor from bearing the brunt of the higher
\nprices. The government has said it will maintain subsidies for
\nkerosene, the most widely used fuel in poor households.<\/p>\n
A Cabinet meeting last week decided to increase budgetary
\nappropriations for helping poor families bear the higher prices
\nto almost Rp 18 trillion from Rp 7.3 trillion originally
\nallocated. These funds will be used for health services,
\neducation, rice subsidies, rural infrastructure and public
\nhousing.<\/p>\n
But public acceptance also depends on the government's
\nwillingness to take on its full share of the burden through
\nminimizing waste and inefficiency caused by corruption and by
\ntruly behaving and acting out of a real sense of urgency and
\ncrisis.<\/p>\n
The government should go all out to convince the people that
\nthe fuel-price hike is really for their benefit, otherwise a new
\nbout of social unrest could surface at the expense of economic
\nand political stability.<\/p>\n
The government needs to establish a reliable mechanism for
\nensuring that the poor are fully protected from the additional
\nburdens to be inflicted by the new fuel-pricing policy -- that
\nis, that the remaining subsidies reach their target
\nbeneficiaries.<\/p>\n
Encouraging, though, is that the government already has a
\nfairly comprehensive map of the country's poverty pockets so that
\nthe various forms of assistance have a better chance of reaching
\ntheir target beneficiaries.<\/p>\n
However, the government and business leaders are yet to sit
\ndown and calculate the impact of the higher fuel prices on
\nproduction costs for goods and services, and the central bank
\nneeds to design appropriate monetary policies to manage
\nanticipated inflationary pressures.<\/p>\n
These preparations are all necessary to prevent a reaction of
\npanic. At a time when many people are still suffering the brunt
\nof the economic crisis and millions of others are either
\nunemployed or underemployed, additional burdens stemming from
\nhigher fuel prices could easily incite public anger.<\/p>\n
The absence of justice and an equitable sharing of burdens
\ncould sabotage the whole reform movement.<\/p>\n
Massive street demonstrations, such as those in early 2003,
\nwould only make things murkier, increase uncertainty and affect
\npolitical stability. This in turn could press down the rupiah
\nexchange rate and consequently further increase fuel prices and
\nforeign debt servicing at the expense of government spending on
\nsocial safety net programs.<\/p>\n
Moreover, it would be almost impossible to do business under a
\nwildly fluctuating exchange rate.<\/p>\n
There are only a few weeks left for the government to consult
\nthe House about the planned fuel-price hike, prepare the business
\ncommunity to cope with its consequences and sell the idea to the
\ngeneral public.<\/p>\n
Time is not on the government's side. Delaying the measure
\nwould only create uncertainty, breed speculation and further
\ndamage the government's policymaking credibility.<\/p>\n
The writer is a senior editor of The Jakarta Post.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/preparing-public-for-higher-fuel-prices-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }