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View Point: From fuel subsidies to fuel entitlement: Why not a fuel card?

If and when President Joko “Jokowi” Widodo finally raises fuel prices, he will not resolve the contentious question of what constitutes a fair price to charge motorists

Endy M. Bayuni (The Jakarta Post)
Jakarta
Sun, November 16, 2014

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View Point: From fuel subsidies to fuel entitlement: Why not a fuel card?

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f and when President Joko '€œJokowi'€ Widodo finally raises fuel prices, he will not resolve the contentious question of what constitutes a fair price to charge motorists.

He will buy himself time for sure, but as long as the fuel subsidies are still there, the problem will not go away. A few years from now, through a combination of increasing world oil prices and a falling rupiah exchange rate, the fuel subsidies bill will haunt us again.

We will be back to where we are today: Debating endlessly about fuel subsidies. This has been going on for decades. Each time, the nation wasted so much time and resources fighting and agonizing about whether to raise prices and by how much.

Politicians and students have been up in arms, opposing the increase '€œin the interests of the people'€. We have been there before.

No matter how forceful an argument you make about the need to raise fuel prices '€” whether in the name of efficiency or equality '€” the objectors always steal the headlines.

Raising fuel prices is a political hot potato. President Soeharto'€™s regime collapsed in 1998 soon after he raised the fuel prices that triggered massive street protests. Other presidents since have tiptoed carefully around the issue. Susilo Bambang Yudhoyono avoided it completely, leaving Jokowi to deal with the impending financial crisis.

The government already plans to spend more than Rp 250 trillion (US$20.4 billion) on fuel subsidies this year under the current estimates of world oil prices, exchange rates and domestic consumption. That is more than 13 percent of its total spending for the year.

 But what if the Jokowi administration switches from subsidies to an entitlement program that gives out money to people to buy their fuel at market price?

The mathematics could not be simpler: If the government budgets Rp 250 trillion on fuel subsidies next year and there are around 250 million people in this country, then each person '€” irrespective of age and economic status '€” should get Rp 1 million per year.

Jokowi has already introduced the Indonesia Health Card (KIS), Indonesia Smart Card (KIP) for students, and the Prosperous Family Card (KKS) for poor families. Why not now launch the fuel card, or call it the '€œBBM Card'€ after the Indonesian acronyms for bahan bakar minyak (gasoline).

Like it or not, in this country we are already witnessing the quiet launch of a new socialism à la Jokowi. It is the same old socialism with many entitlements, but instead of using rations or coupons, the 21st century version uses electronic cards.

Sounds crazy? Perhaps. But the idea of a fuel entitlement program is no more ridiculous than the current subsidies mechanism. It is certainly much fairer.

Under the subsidy plan, the lion'€™s share of the subsidies (the Rp 250 trillion price tag) would go the wealthy in their many fancy cars, as well as the crooks, oil smugglers and the oil mafia. The poor people, who do not drive cars or at most ride motorcycles, get the smallest benefit, if at all. It is a raw and unfair deal.

If the average bill comes to Rp 1 million for each person, some people will actually get a lot more than Rp 1 million in government subsidies, and many more will get far less than that. A Rp 1 million fuel entitlement card would mean everyone gets exactly the same.

This fuel card would go a little further than the KIP and the KKS given to those in the poor category, but would be similar to KIS, which is universal.

Call it the universal fuel entitlement program. Indonesia can claim to be the first country to have come up with the concept.

The fuel entitlement program will allow the government to adjust the prices of fuel sold at gas stations at whatever the world oil market charges Indonesia (lest we forget, Indonesia today is a net oil importer).

Indonesians will pay the market price for their fuel, just like almost everybody else in the world, but they will get a Rp 1 million entitlement per year.

What about the moral hazards that entitlements usually create? Could we learn from the mistakes of European countries, which had welfare programs that their governments simply could not afford and led to bankruptcies that triggered the economic current crisis?

Entitlements that go unchecked will create a culture of dependency. President Jokowi must ensure that all his entitlement programs are temporary. In the long run, the old adage applies: Give the poor the fishing rod, not the fish.

The use of cards for his social programs could create the impression that they are becoming a permanent feature of the government. People will become dependent on them and governments rise and fall on their position with regard to these entitlements.

The fuel entitlement card, if the government decides to follow this advice, should also be a temporary measure.

The moral hazard argument applies to whether we have the fuel entitlement or the subsidy program. But the card program can be a way of phasing out the subsidies by helping people to adjust and wake up to the reality of world oil prices: They are not cheap.

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The writer is senior editor at The Jakarta Post.

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