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.