Will fuel price increases add the number of poor?

Will fuel price increases add the number of poor?

The Jakarta Post, Jakarta

Life is not so sweet for a small cottage industry producing
caramelized snacks in Kemanggisan Pulo, West Jakarta, since the
fuel price hikes.

"Our production has decreased because the increased fuel
prices have inflated the prices of raw materials for our
products," factory owner Emen Suhaimin said.

Even before the increases took effect, raw materials such as
corn, rice and sugar were already on the rise, Emen said.

With a budget of Rp 500,000 per day, the small business used
to produce around 2,000 packets of snacks worth Rp 500 each. Now,
with the same budget, Emen says he produces only half that
volume.

There were now frequent kerosene shortages following the
increase in keronsene prices for commercial users, which had led
to big businesses buying up all the supplies. As his small
business uses kerosene, Emen says he now has to frequently stop
production.

Emen has 10 employees, five of them working in the factory and
five others assigned to distribute the snacks.

"Now, sometimes our sales are equal to our costs. We are
making no profit," he said,

Emen says he will have no option but to lay off some of his
workers should his business further deteriorate.

However, analysts disagree about whether the increases in the
fuel price will result in the increase in the number of poor
people in the country.

Recently, two research institutes, the Institute for Economic
and Social Research (LPEM-FEUI) and the Institute for Development
of Economy and Finance (Indef), debated the impact of the fuel
price hike on the poverty index -- the ratio of the poor to the
total population.

This data showed the poverty index now stood at 16.25 percent,
meaning there were some 37 million poor out of a total of 220
million Indonesians.

Under the World Bank's definition, a person is considered poor
if they earn less than US$1 a day.

LPEM-FEUI said in its research said if the distribution of the
fuel compensation fund did not miss its target, the program would
decrease the poverty index down to 13.82 percent.

A more conservative scenario, which took into account the
possibility of a small amount of the funds being wrongly
targeted, indicated the program would still result in a decrease
in the poverty index to 14.53 percent.

The decrease would mean that as the government channeled all
of the budgeted Rp 17.8 trillion of compensation there would be
at least five million people taken out of poverty.

"We are currently using detailed calculations on how much
commodity prices would be affected by fuel (prices) hike and how
much this would affect the poor," LPEM-FEUI director Mohamad
Ikhsan told The Jakarta Post.

As a direct consequence of the increases, businesses are
likely to increase prices for their products to balance their
rising production costs.

The research was based the data collected by the Central
Statistics Agency (BPS) during the economic survey in 2002.

However, Indef, which used BPS data gathered during a 2004
social and economic survey, has come to a different conclusion.

Assuming that the hike would raise inflation to 12.5 percent,
Indef said the fuel price increases would increase the poverty
index to 18.61 percent, an increase of four million poor.

"We are taking into account the fact that last year only 25
percent of health funds reached their targets, not to mention
other compensation schemes," Indef director Aviliani said.

Indef's report showed that last year, only 25.9 percent of
rice for the poor reached its target, 26.53 percent for health
services, 35 percent for scholarships and 9.89 percent for soft
loans for small and medium enterprises.

"The bottom line is, if the government uses a similar scheme
this year, the fund will not be effective." Creating real job
opportunities would be the best way to increase the welfare of
the poor, she said.

Both groups, meanwhile, urged the government to closely
observe the channeling of the fund.

"Developing an independent community of information services
to help oversee the use of the fund might help," Ikhsan said.

Aviliani said the government should not rely only on district
officers to report who was entitled to the funds because the
method would only benefit those close to the bureaucracy.

Creating a more transparent and reliable mechanism to deliver
compensation funds would be the government's next biggest task,
he said. 003