T

he Jakarta Post has been flooded with comments about fuel subsidies and, still, I think the most obvious idea about how to solve the matter has not been raised. We already started to see the testing of different plans to curb fuel subsidies in Indonesia: quotas and territorial and hourly sales limitations.

What we see as results: shortages and queues. The economic fact is that none of these can solve the problem. They just bring frustration and will enhance black market trading and hoarding. It'€™s high time to admit that there is only one solution: the complete elimination of fuel subsidies. It'€™s just that it is unlikely that any attempt to increase fuel prices to reach market prices in the short term would get sufficient political support.

For this reason it would make sense to consider a gradual, continuous and predictable increase of subsidized fuel prices (and a parallel elimination of the subsidies) through a longer period in several steps. For example, each month the price of subsidized fuel could be increased by a minor amount (say
Rp 100/US$0,0085 or Rp 200 rupiah per month) until the price of the fuel reaches the market price. Such tiny and predictable increases would not mean unbearable burden in the short term and would not encourage hoarding, either. Even if the achievement of the final goal is further ahead in time, there would at least be a clear path to the elimination of the fuel subsidies.