Economist: Falling Global Oil Prices an Opportunity to Reform Fuel Policies

A researcher and lecturer at Padjadjaran University’s Faculty of Economics and Business, Yayan Satyakti, believes the decline in global oil prices presents an opportunity for the government to reorganise its policies. There are several steps the government can take as oil prices soften, namely utilising the momentum to narrow the subsidy gap, restoring fuel stock buffers, and strengthening targeted protection. “The momentum lies in the fiscal space and the opportunity to arrange regulations. When oil prices are calm, that is when reform is cheapest to implement,” Yayan said when contacted from Jakarta on Tuesday. He considers providing assistance to vulnerable households already registered in government data to be more effective than subsidising commodities that are also enjoyed by the wealthy. Furthermore, Yayan stated there are still a number of risks the government needs to watch, as they could push fuel prices back up. The most apparent risk, he said, stems from geopolitical turmoil. Brent crude oil prices briefly touched 100.17 US dollars per barrel on 23 July, the highest since May. That figure rose 6.5 per cent in a single day from 94.07 US dollars per barrel due to threats to the Strait of Hormuz and Bab el-Mandeb. The next risk is the rupiah exchange rate. Yayan reminded that the fuel pricing formula uses the exchange rate.