SBY can raise fuel prices without resistance: Expert

SBY can raise fuel prices without resistance: Expert

Dadan Wijaksana, The Jakarta Post, Jakarta

Raising fuel prices has always been politically sensitive, but
with his popularity and communication skills, Susilo Bambang
Yudhoyono, who is set to become the next president, will be able
to raise the prices without much resistance from the public,
according to an economist.

"It's better that he takes the decision now rather than later,
while he's still hugely popular.

"The key is communication. He should educate and communicate
with the public well that the decision is not only economically
rational, it will also not harm the poor," University of
Indonesia economist Chatib Basri said on Thursday.

He made the comment following a surprise move by the budget
committee of the House of Representatives to cut the fuel subsidy
for this year from the proposed Rp 63 trillion (about US$7
billion) to Rp 59.2 trillion.

The committee offered the new government three options: raise
fuel prices, reduce fuel consumption or boost efficiency in the
use of fuel.

"It has been agreed that there will be a cut in the fuel
subsidy. And we shall let the next government exercise the
options to plug the shortfall," committee chairman Abdullah
Zainie said.

While boosting efficiency and cutting fuel consumption looks
impossible to do in such a short time, Susilo will have to take
the most difficult option: raising fuel prices some time this
year. Raising fuel prices in the past has often led to protests
or riots.

The committee's decision came as a surprise, as earlier in the
deliberation process, the House members and government
unanimously pledged to cover the whopping subsidy, so as to avoid
raising fuel prices.

The decision was taken after it became apparent that Susilo
would emerge as the victor in the election over President
Megawati Soekarnoputri, whose party the Indonesian Democratic
Party of Struggle (PDI-P) dominates the House.

Together with other parties led by the Golkar Party, which won
the April legislative election, Megawati's PDI-P has formed a
formidable coalition -- with some 60 percent of the total seats
in the House.

Chatib said that from the economic viewpoint, cutting the fuel
subsidy was a must, regardless of who becomes president.

"What's important is the compensation. We can start by
increasing funds for education, health, or other basic needs.
When people realize that they can have cheaper education and pay
less for health care, they would not be so concerned about paying
higher prices for fuel.

"Besides, we all know that it's the haves who mostly enjoy the
subsidy," Chatib said, citing a study by the Institute for
Economics and Social Research, School of Economics, University of
Indonesia (LPEM-UI).

The study, issued last year, showed that those who are
economically well-off consume Premium gasoline 8.2 times more
than the poor and in the case of automotive diesel oil, the
former's consumption is 99.4 times higher than the latter's.

For kerosene, however, the poor consume 1.5 times more than
those in the higher income brackets. "That's why, the reduction
in the subsidy for kerosene has to be done gradually," Chatib
said.