Economist: Even Though It's Bitter, The Subsidized Fuel Price Adjustment Must Be Able To Determine

JAKARTA - The policy of transferring pertalite, diesel and pertamax fuel subsidies to social protection programs is considered the right design for the state budget.

"Although bitter, the subsidized fuel price adjustment policy must be well understood," said Economist Faisal Basri, Wednesday, September 7.

Faisal said price adjustment is a global phenomenon because almost all countries, including major oil producers, such as Saudi Arabia, have increased fuel prices.

According to him, prices in Indonesia are cheaper than the main producer of Saudi Arabia oil.

The Indonesian government needs to devote energy to mitigate the impact of the potential increase in inflation and reduce pressure on economically vulnerable communities.

"Use all instruments to ease the burden on the people," said Faisal.

In economic theory, explained Faisal, one of the goals of subsidy policies is redistribution, so that revenue distribution becomes more equitable. By setting a cheaper price, the poor can buy the goods subsidized.

The fuel subsidy doesn't seem to be in line with this goal because it turns out that the poor are using less fuel than the rich. Meanwhile, fuel subsidies require a very large budget," he explained.

President Jokowi had said that 70 percent of fuel subsidies were actually enjoyed by financially capable community groups, namely private car owners.

According to him, state money should be prioritized to provide subsidies to underprivileged communities.

At the same time, the government sees the urgency to strengthen social protection programs for underprivileged communities in the midst of the global geopolitical turbulence which is currently getting higher.

Head of the State Intelligence Agency Budi Gunawan said that the steps to sharpen subsidies to the most vulnerable groups are very urgent and must be a priority because they consider economic stability and resilience.

Economic intelligence analysis data, explained Budi, shows that the current global situation will continue to provide economic pressure to all countries and the impact will be felt in economically vulnerable circles.

The Indonesian government then diverted some of the energy subsidies that were less effective in dealing with pressures so that vulnerable economics would not drop to the level of poverty. I am even absolute due to rising food prices and basic daily needs.

So far, the government has prepared social pads in the form of BBM Direct Cash Assistance (BLT) worth IDR 12.4 trillion which will be given to 20.65 million underprivileged families with a nominal value of IDR 150,000 per month which will be given for four months starting from September 2022.

In addition, the government has also prepared wage subsidy assistance worth Rp600 thousand per person for 16 million workers with a maximum salary of Rp3.5 million per month with a total budget of Rp9.6 trillion. In fact, local governments are directed to use 2 percent of public transfer funds for public transportation assistance, online motorcycle taxis, and fishermen with a value of Rp2.17 trillion.

Various social pads are provided to provide effective protection to vulnerable communities. This is behind the decision to transfer subsidies so that they focus on people who need most assistance.