Fuel Subsidy

Fuel subsidy: dual price from privately owned car and public vehicles
24 April 2013
Agung Rino Prasetyo

 President SBY and his cabinet held a meeting on April 14 to discuss about the fuel subsidy issue to reduce the number of traffic commuting through the streets of Indonesia, especially Jakarta. This meeting was held at the Presidential Palace in Cipanas. It has been a long term issue regarding the increasing number of vehicles that commutes daily in Jakarta, and the number keeps rising day by day. Regional leaders attended the meeting as the fuel subsidy has taken the majority of Indonesia’s budget annually.

 The issue discussed in the meeting is the dual price of octane-88 premium fuel for privately owned car and public transport and motorcycles. The price for public vehicles and motorcycle will remain at Rp 4,500 and for the privately owned cars it could increase to Rp 6,500 – Rp 7,000. If this change is implemented, the government could save up to Rp 21 trillion by the end of this year alone. This policy needs to be implemented as soon as possible according to Energy and Mineral Resources Minister, Jero Wacik. It can be agreed that this policy might just be able to reduce the traffic and save the government from excess expenses so that other resources can be improved.

 It is clear that the upper middle class are enjoying the benefits of subsidized fuel. Many of the family in this category have more than the number of vehicles that they really needed and therefore creating an unbalanced advantage between them and the poor. Motorcycles are also a big issue, not only for the safety reasons, but also for the total census of motorcycles that travels everyday. As we know, many of the working class citizens in Jakarta rely on their motorcycles because of poor public transportation.

 SBY has the power and authority to directly say that this policy needs to be implemented. However there would be risks involved with this decision. There will be political and social unrest triggered by this policy. The last time the fuel prices have increased, there were major demonstrations demanding the government to re-evaluate their decision to increase fuel prices. The most significant incident involving the rise of fuel prices came in 2005 and 2008. Back then, the inflation rate was not as bad as it is today. It is estimated that if this policy does come through than the inflation rate will increase again by 6.1 percent according to Bank Danamon chief economist, Anton H. Gunawan.

 As the inflation rate increases, it gets harder for the poor to stay stable in the economy. This jump will no doubt cost workers their job as companies will need to cut their spending. For the people that got laid off from work, it can lead to unemployment because if the economy is down, then the possibility of getting a job becomes smaller. It is important to note that while SBY is concerned about how the public will react if the dual fuel price policy is imposed, he should not neglect the importance of this decision. During his regime, he has tried to do his utmost to improve Indonesia. From the economical point of view, he is quite successful as Indonesia is now part of the international trade that has quite the power to import and export goods.

 This policy seemed quite outrageous after governor Jokowi proposed that Jakarta should use an odd and even plate number system. It would then follow the date of the calendar, allowing only the car that have the correct odd or even number to travel on that date. There is more important matter for SBY if he is concerned about his legacy in his regime. Economy Minister Hatta Rajasa has said that this fuel price increase will help the country to focus their budget on other aspects of the economy.

 There are many suggestions that by improving the public transport, more people would actually consider taking the bus. Trans Jakarta Busway is the best public transport in Indonesia. The train system is chaotic with the schedule not running on time, and the quality of the train itself is not satisfactory. Jakarta needs a good public transport system that will ensure safety and comfort to the citizen of Jakarta.