When Fuel Price Must be Raising.......

So many researches were borned before government to decide raising fuel on middle of 2013. Researcher’s team from 3 top rank university had ever been recommended three ways for government created optimal fuel subsidize policy. First, the team proposed to raise fuel price for Rp.500,00, and realocation subsidize to public transportations. It could be compensation and vague potential infaltion to be higher. Second, all of users of private transportation have to move from premium (RON 88) to pertamax (RON 92). It’s cleared to reduce fuel subsidize. Third, we could be used fuel consumption controlled system to restrict over demand. But, since the team proposed recommendation around on middle of 2011, there’re no one of recommendation to propose parliament. At the end, results of comprehensive research had never been based government to make policy for fuel prices.

Now, after almost 2 years, the government have to create new policy about fuel price. Adjusment price need to do now, cause fuel subsidized around Rp.297,7 T or 46,01 million kilo litres, cause its makes heavy use for national budget. With total of subsidize around Rp.446,8 T or 26 % of national budget. This means budget for subsidize over than education budget, its shows possibility misallocation of national budget. Because many studies had been showed almost 70% fuel subsidize to give benefit for middle to rich people and the rest felt of poor people. By rational its makes sense the owner of private transportation only for both of middle and rich class. However there’re consequency created new poor people if fuel price have to raising. I think it’s interesting, the government in the middle position, the dilemma for regulator commonly happened so Indonesia can learn by western countries when they’re made policy to reduce fuel price subsidize.

I believed almost economists know consequencies when fuel price raising. So, always there’re solution to compensate fuel price raising. We can say the government too late, if they just understand to raise fuel price are important. In spite of that Government should prepare all of possibility happened after fuel price raising. Still be better late rather than steady on keep fuel price on Rp.4.500. However, discussion within government and parliament, just will schedule on middle of May 2013. We hope the discussion can be created optimalized policy about fuel price. And it’s more important to know consequencies after implementation of policy. So, the anticipation can be early to reduce bad impact for Indonesia economy. If economic interest still has been prioritized rather than politics, we believe fuel price raising has been optimal policy, but they must decide how much price have to increase? It’s still on debate able within of them.

Consequencies of fuel price increasing

Now, Indonesia has got economic growth 6,2 % on 2012, its second best growth after China cause global economics is still on suffered, just created growth 3% under normal criteria realeased by IMF. As second best growth perfomanced in the world, Indonesia has been interesting point for foreign investor come to invest. Indonesia has not only been good economic performance, but also Indonesia offer high yield for investor rather than other countries, even some contries has been yields near 0%. So, as country with investment grade rating bring consequencies for fundamental economy. At the end, Indonesia has to be ready to welcome demand for capital product, consumption (fuels, food stuff, etc), and others, will increase and bring consequencies for domestic economy. One of phenomena today is about trend of increasing fuel subsidized consumption each years. It’s one impact of economic growth of Indonesia. I think its common phenomenon when economic growth drive increasing consumption, investment, government expenditure, and net export.

In Economics Studies, when planned aggregate expenditure lower than aggregate expenditure, they will increase spending until closed equlibrium point. Indonesia has been higher equilibrium point cause component likes government expenditure, public consumption, and investment, increase in same times and create new equilibrium. At the end, economic expansion will be moved toward new equilibrium point. So, the government has to adjust fuel subsidy price because subsidized allocation in national budget nearby 50 percent. It’s critical situation, in other side government has to allocate budget to suport investment and industry facilities such as infrastructures, power plants, and research and development. So, government must take position to increase fuel price and to reduce fuel subsidy, i think its will be smart policy because we can reallocate budget to other sectors surely give more benefit for Indonesia’s Economy.

Now, increasing fuel subsidy price have to do immediately. Because every industry needs certainty supply of fuel, to grow their business. That’s why to suport the high intensity of economy condition, policy for increasing subsidy fuel price need to do as soon as possible. However, the policy will has some consequencies for Indonesia’s macroeconomy. First, Increasing fuel price has got to drive higher inflation. it means production cost will be increasing too in line with fuel price. At the end, price product will increase following fuel price as input factor of production. Second, increasing fuel subsidy price will be brought down willingness to pay for people. Without growth of income, increasing fuel subsidy price will potential reduce willingness to pay. At the end, people welfare are down because purchasing power of money being down too. Third, the policy will create potential new poor people. With higher of inflation and downing of purchasing power are indicators to know potential wideness of poor people.

But, for this situation government don’t have to worry because many social program has been built to reduce and strengthen people life around and under poverty line. we know about Jamkesmas, program keluarga harapan (PKH), raskin, bantuan siswa miskin (BSM), PNPM Mandiri, bantuan operasional sekolah (BOS),  and kredit usaha rakyat (KUR). All programs have been run for some years ago, it means these programs have been giving benefit to people. So, with assume these programs can run optimal, i believed that increasing fuel subsidy price can not  disturb Indonesia economy  stabilize in the long run. Intead of the policy to increase fuel subsidy price can keep momentum growth domestic economy. At the end, no space reason for government has not to increasing fuel subsidy price, except if parliament disapproved.