Wednesday, September 21, 2005

Fuel Price: 60% more

According to recent news in, the Indonesian Government will raise the fuel price up to 60%. It is due to the government's plan to cut subsidies that they think better to be allocated to help the need of poor people like health and education costs. The soaring of oil prices in world market is also the reason of this unpopular decision.
Indonesia at the crossroad: if fuel subsidies is not cut then the state budget will be heavily burdened when oil prices' fluctuation reaches some of its highest peaks. The uncertainty of Middle East politics would be of course a great influence, plus recent big hurricane which also damaged some oil facilities in America's off-shore. The oil prices in Indonesia is extremely low in South East Asia, approximately 50% of that in Malaysia, for example. Oil smuggling is found to be difficult to fight because you can get up to 100% profit if you succeed to sell Indonesian oil outside. It happens everywhere, from western borders with Singapore and Malaysia to eastern borders with East Timor and Papua New Guinea. In Kompas newspaper it is said that the state loss because of fuel smuggling could reach approximately Rp. 56 trillion, or US$5.6 billion per year. This is because actual oil price in Indonesia in 2003 was even under production costs that should be heavily subsidized.
But on the other hand, raising fuel price could cause also raising price of commodities, up to 40%. The reason what is repeatedly argued is that higher fuel price will raise also production costs, distribution costs, also retail costs to consuments. It will be a big problem for poor people. Therefore VP Jusuf Kalla said that the first priority should be to complete compensastion of fuel price raising in March 2005 to the poor people. It is harder than what is said because government databases in district levels are rather bad. It has no relation with e.g. data about their work. Indonesians usually only asked to write down their status in the ID card but a complete database about where they work, how much they earn, how much tax they pay, do they have pension funds, health insurance, etc seem to be blank for the official. For ID card itself you have two ways to do it: normal, that means you should wait for a week. and "fast way", you can have it less than 3 days with some extra (illegal) money.
It is sad to be true. Should all bureacracy system be heavily reformed first and the costs to to do that will be burdened to budget reallocation from oil subsidies? About Rp. 14 trillion or US$ 1.4 billion per year should be enough to terminate inefficient bureaucrats, building up a modern database. Modern database doesn't always mean sophisticated computer system database but a good archiving which needs a high discipline should be built, and of course, an anti-corruption system.

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