The case of Indonesian fuel subsidy

The untargeted fuel subsidy in Indonesia is a very wrong policy; thus should be adjusted to be a targeted one. However, strangely, still, some political parties are opposing this policy change, reflecting the irrational or lack of intellectual-based politics in Indonesia.

Indonesia became net importer of crude oil since 2004, at the first year of the current President’s administration. Since then, the difference between oil production and consumption has widen, reaching 300,000 barrel or around 36 million liters per day in 2012 (US EIA, 2013).

The cause is easy to guess, that is surge in the number of motor vehicle due to increasing economic activity. Indonesian passenger cars has grown around 12% annually since 2004 reaching 10 million cars in 2011; while the motorcycle has grown even higher, at 17% per year, reaching 70 million units in 2011.

The amount of subsidy in Indonesia is enormous. It was around 14 billion US$ (Rp 137 trillion) in 2012 or around 10% of total government revenue. As of 2010, there are 46% of Indonesian or around 111 million people live below US$ 2 (PPP) per day. If we use all of these subsidy money in 2012 alone, then 59 million people will be out of poverty instantly, almost half of the current level*. To put it in another context, this Rp137 trillion is almost twice of ministry of education budget; seven times of agriculture ministry’s budget; or almost 20 times of fisheries ministry budget. The amount is unbelievably huge (every year).

In short, we need a game change here. (The current scheme of) Subsidy is bad for our economic development, bad for our environment, and bad for our mentality (dependent on subsidy). The subsidy should be a targeted one. By using government’s data that around 12% of Indonesian live under national poverty line, that is around 30 million people or 7.5 million household. By giving every household Rp100,000 every month (a very huge amount compared to previous cash transfer) as the compensation of subsidy removal, than it equals to only nine trillion Rupiah, or merely 6% of subsidy budget in 2012.

The time has come to Indonesia’s politics to be  more rational. The current political party should feel ashamed to our founding fathers and to all of heroes who sacrificed their life, family, wealth, and everything they had so that this country can gain independence and become a prosperous one. The Indonesian voters should also be more rational in choosing party which is taking ‘a make sense’ policy. I guess this is the job of us, the educated Indonesian to teach our people to be a rational voter. Wallahu’alam bisshawab.


Note: *) By using a very conservative assumption, that is all of these people will receive $2*365 or $730 (PPP) per year.