Govt must delay fuel subsidy ban for SMEs: Economist

An expert says that the government should delay plans to ban private cars from using subsidized fuel for at least by six months to prepare safety net for small- and medium-enterprises (SMEs) that may be affected by the policy.

Anggito Abimanyu, a prominent economist from Yogyakarta-based Gadjah Mada University and a former senior finance ministry fiscal policy official, said that the government had not calculated the policy’s impact on SMEs, given that their vehicles would have to use non-subsidized fuels whose prices were almost double compared to subsidized fuels.

“There are 52 million SMEs nationwide. Transportation expenses represent 21 percent of [their] total expenditures,” Anggito told reporters when speaking at the Freedom Institute in Menteng, Central Jakarta, on Friday.

If the price of fuel increased 100 percent, the profits of SMEs would drop 18 percent and their ability to absorb workers would fall 2.5 percent, he continued, Anggito said, quoting a 2008 study.

Angito said there were two ways to minimize the negative impact of the policy on SMEs.

First, SME vehicles could change from the black license plates used by private cars to the yellow plates used by public transportation vehicles so that they could still buy subsidized fuel, he said.

The second alternative would be for the government to provide direct cash assistance (BLT) to the companies.

The alternative chosen by the government would remain in place until infrastructure was available and accessible, after which the SME vehicles would convert to gas-based fuel.

If the implementation of fuel subsidy restrictions was delayed until September, the government would save Rp 14 trillion in reduced spending on subsidies, as opposed to saving Rp 30 trillion if its plan was implemented in April as scheduled, Anggito said.

“September is the right month because it is a month of deflation. The economic burden of the subsidized fuels limitation policy will not be too severely felt,” he said.

Anggito also urged the government to continue promoting gas-based fuels for private cars, while recommending that officials focus on specific fuels.

“The government has to choose whether it wants to push for compressed natural gas [CNG] or liquefied gas for vehicles [LGV],” Anggito said.

Jayan Sentanuhay, an internal combustion engine specialist at Gadjah Mada University, agreed with Anggito, saying that determining one specific type of gas fuel for private vehicles would simply infrastructure problems.

“Users have to be sure that the fuel they use is available anywhere they go,” Jayan said.

In addition to providing more gas stations, the government had to educate people on how to safely use the kits needed to convert cars from oil to gas fuels, Jayan continued.

“It’s also important to standardize all components used in the converter kits,” Jayan said.