Jokowi Goes All-In on Reallocate Fuel Subsidies

12/12/2018

Resistance remains high against Indonesian President Joko Widodo’s confirmed plan to cut fuel subsidies, as he said last week he was ready to risk his popularity as a consequence of the move.

“It’s fine, I don’t care if I’m not popular as long as the people’s interests come first,” Joko said during a meet and greet with the Indonesian community at Queensland’s University of Technology in Brisbane on Friday night.

He was in Brisbane for the Group of 20 Leaders’ Summit this weekend.

The president said Indonesians needed to change their perception of the fuel subsidy and the purpose it served.

“How is it possible that budget allocations for health care and infrastructure building are lower than for the fuel subsidy?” he asked.

“Our people need to become familiar with the concept of saving, and stop consuming so much.”

Joko said that in the past five years, Indonesia had spent Rp 714 trillion ($58.5 billion) on fuel subsidies, but just Rp 220 trillion for health care and Rp 570 trillion on infrastructure.

The government has allocated Rp 443 trillion for the fuel subsidy in 2015.

He said it was time for Indonesia to allocate the money spent on the subsidy to more productive uses, including subsidies for fishermen and farmers.

Joko reiterated his administration’s plan to cut fuel subsidies in his speeches during the Asia-Pacific Economic Cooperation Summit in Beijing on Nov. 10 and during a retreat session of the G-20 leaders’ meeting in Brisbane on Saturday.

He told other APEC and G-20 leaders that the Indonesian government would divert some of the fuel subsidy funds to finance Indonesia’s infrastructure projects in the next five years, aside from the agriculture, fisheries, education and health sectors.

Joko said that upon his return to Jakarta on Sunday, he would calculate new prices for subsidized gasoline and diesel and announce it to the public.

The government has said it will increase fuel prices, but has declined giving a specific date. Global oil prices continues to decline, recently touching $80 a barrel.

Joko has said he aims to strengthen the systems used to transfer entitlement benefits nominally aimed to offset the price hike. In contrast to predecessors, Joko says he will not offer a cash handouts to Indonesia’s poor, which he says encouraged frivolous spending and graft.

“I know exactly what our people are like, because I was one of them and I visit them frequently. After they get the cash aid, they spend it on things like cellphones and phone credit,” he said.

Joko said he would instead use his newly launched series of welfare programs to allow people to withdraw the compensation from banks using their government-issued welfare cards.

The system, he said, would prevent corrupt officials from taking a cut of the compensation fund and would encourage people to start banking their money.

Joko’s own party, the Indonesian Democratic Party of Struggle (PDI-P), however, has maintained its opposition to fuel subsidy cuts, which it calls an “anti-liberal” economic policy.

PDI-P deputy chairman Effendi Simbolon said the planned hike was a result of Joko’s flawed appointment of ministers in charge of the oil and gas sector.

“I’m concerned. Those ministerial posts have been given to people who adopt liberal economic policies,” Effendi said.

“President Joko Widodo has been calling for a mental revolution, but his cabinet fails to carry out a mental revolution with [the planned] increases of oil prices.”

A similar objection was again voiced by the Great Indonesia Movement (Gerindra), one of the opposition parties in the House of Representatives.

Kardaya Warnika, a Gerindra lawmaker and the head of the House’s energy commission (commission VII), argued there was currently no basis for a price hike, given the declining prices of crude oil at the global level.

“Prices [of subsidized fuel] can be increased if the global prices are up. Now, though, the global crude oil prices are dropping; there is no need for the government to raise the prices,” Kardaya told an audience in Jakarta on Saturday.

“There have never been increases in [subsidized] fuel prices while the global oil prices are in decline,” he said.

Kardaya’s reasoning would appear to run counter to the operant economic rationales of India and Malaysia, which recently cut their fuel subsidies.

If the administration insists on increasing prices, they must make their reasons clear — including actual production costs, Kardaya added.

Kardaya’s statements contrast sharply with those of other energy observers and economists, who have said cutting fuel subsidies was necessary to reduce the country’s fiscal burden and widening current account deficits.

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Jokowi Goes All-In on Reallocate Fuel Subsidies