Rising fuel price benefit economy: Economist Sadli

Rising fuel price benefit economy: Economist Sadli

Urip Hudiono, The Jakarta Post, Jakarta

The government's policy to increase fuel prices will eventually
benefit the country's economy by helping it achieve healthier
economic growth, an economist says.

"Higher fuel prices will not turn the nation's economy into a
catastrophe," senior economist M. Sadli told a discussion on
Sunday. "Indonesia has experienced fuel price hikes 25 times
during the past six decades and has still managed to overcome
them while at the same time maintaining a decent economic growth
of at least 5 percent."

Apart from stable growth, Sadli said, Indonesia with a current
annual income per capita of US$1,000 is now classified as a
middle-income country and its economy was less susceptible to
inflation shocks from fuel price surges.

"If we were still a low-income country, then a major fuel
price hike would cause a soaring inflation rate that could
devastate the economy," he said. "But now, the only thing that
could bring Indonesia's economy to its knees is another financial
crisis like that of 1997."

Sadli pointed to a study by economists M. Ikhsan and Chatib
Basri from University of Indonesia's Institute for Economic and
Social Research that showed the recent fuel price hike would only
result in an inflation rise of between 1 and 2 percent.

Studies by other economists, despite their fierce opposition
towards the policy, also came up with similar low rises in
inflation by a maximum of 3 percent.

"The important thing is how the government maintains sound
macroeconomic policies to control the inflation rate and more
importantly, improve investment climate to ensure further
economic growth," he said.

Sadli said Indonesia could afford to keep the fuel subsidy but
many economists would say that the country would miss out on
achieving more with the funds. "We could save the funds and use
it to spur productivity and improve people's welfare."

He explained that a country experiencing a growth of 5 percent
would usually show a fuel consumption of the same rate.

But Minister of Energy and Mineral Resources Purnomo
Yusgiantoro said fuel consumption in the country has continued to
grow by an average of 7 percent per year, indicating that part of
the consumption was not used for productive activities.

The government cut fuel subsidies and hiked domestic fuel
prices on March 1 to ease the state budget's burden from soaring
global oil prices and create a more efficient use of fuel in the
country.

The government has allocated Rp 17.8 trillion ($1.9 billion)
for various assistance programs for the poor, to ease their
burden from the fuel price hike.

Sadli also advised the government not to back down on its
decision, as it would only erode the government's image and
legitimacy. "If the decision is revoked, the prices of goods will
not come down again anyway."

However, he reminded the government to focus on making sure
the assistance programs reached their target.

Minister of Communications and Information Sofyan A. Djalil
said such programs had "leakages" in the past but this time the
government would plug the leaks.

"We have provided safeguards for the programs by working
together with the public to ensure the monitoring and
transparency of the programs," he said.