Fuel Subsidy in Indonesia, Should/ Should Not?

y Seasonal Unemployment : A type of unemployment that occurs due to the seasonalnature of the job is known as seasonal unemployment. The industries that areaffected by seasonal unemployment are hospitality and tourism industries and alsothe fruit picking and catering industries. 1.4.2.3. The Causal Factors of Unemployment in Indonesia Basically, there are two factors which become the source of unemploymentin Indonesia:1. Personal Factors In this case the causes of unemployment can be caused by laziness, disability/ age and low education and skill. The explanation is as follows: y L aziness factor Unemployed individuals which caused of laziness are actually slightly.However, in the political system of materialist and secularist, many of whichencourage people become lazy, like a payroll system that is not feasible or therampant gambling. Many poor people become lazy to work in the hope of suddenwealth by gambling or lottery win. y Factors disabled / elderly In a capitalist system, the laws that apply are the 'law of the jungle'. Therefore,there is no place for those who are disabled / elderly to get a decent job, because ther are considered no as productive as the young and healthy people. y Factor of low education and skills Currently about 74% of Indonesian workers are those with low education, namelyprimary and secondary school. The impact of low education is the poor skills thatthey have. Furthermore, the Indonesian education system still does not focus onpractical issues required in the life and world of work. Therefore, in the end theybecome unemployed intellect.2. Social Systems and Economic Factors This factor is the main cause of rising unemployment in Indonesia, among them:

Fuel Subsidy in Indonesia, Should/ Should Not? y The imbalance between labor supply and demand Estimated next year will come new headhunter about 1.8 million people, whilethe current that can be accommodated in the formal sector only 29%. The rest in theinformal sector or become unemployed. y Government policies are not siding with the people Many government policies are not aligned to the people and create newunemployment. For example, according to the minister, yesterday's rise in fuel priceshas added to unemployment of about 1 million people. y Development of non-real economic sector In a capitalist economic system, appears transaction that makes money as acommodity that is called non-real sector

, such as stock exchanges and bankingsystem of usury and insurance. The sector is growing rapidly. Transaction value caneven reach 10 times more than the real sector.Growth in money supply much faster than the real sector is pushing inflationand asset price bubbles causing declines in production and investment in real sector.As a result, it encourages companies bankruptcies and layoffs and unemployment.This is the main cause of economic and monetary crisis in Indonesia that occurredsince 1997. y Number of female workers Number of women workers in 1998 there were about 39.2 million. This number continues to increase every year. An increasing number of women workers hasresulted in competition between female job seekers and men. However, in thecapitalist system, for cost efficiency is usually preferred women because they areeasily arranged and not much demand, including the issue of salary. Theseconditions resulted in the number of unemployed men. 1.4.3. POVERTY1.4.3.1. Definition of Poverty There is not any common definition of poverty which is accepted by all countries. Usually, poverty is categorized as material deprivation .

Fuel Subsidy in Indonesia, Should/ Should Not? However, defining poverty solely as being deprived of money is not sufficient. Socialindicators and indicators of risk and vulnerability must also be considered andunderstood to obtain a clear picture of poverty.1.4.3.2. The Criteria of Poor People in Indonesia In Indonesia, the Central Bureau of Statistics (BPS) uses 14 criteria to assumepoverty . This poverty criteria could be debated when the government launched theprogram in direct cash assistance (BLT). Then, the polemic back occurs when the criteriaare again used in the Census of Population 2010. Quoted by Antara, the 14 criteria for poor households are: 1. The house building floor area of less than eight square meters per person.2. The type of floor residential buildings made from earth / bamboo / wood cheap.3. The kind of shelter walls made of bamboo / thatch / low quality wood / wall withoutplaster.4. People are also considered poor if they had no toilet facility / together with another household.5. Household lighting source does not use electricity.6. Drinking water source comes from the well / unprotected spring / river / rain water.7. Fuel for cooking day days include firewood / charcoal and kerosene.8. Only eating meat / dairy / chicken once a week.9. Just buy a new set of clothes in a year.10. Could only eat one or two times a day.11.

Unable to pay medical expenses at health centers / polyclinics.12. The highest education of household heads: no school / did not complete primaryschool / primary school only.13. Source of income of household heads are farmers with an area of 0.5 hectares of land,or farm laborers, fishermen, construction workers, plantation workers or other jobswith incomes below Rp 600,000 per month14. Have no savings / goods that are easy to sell with value of USD 500,000, as wellmotorcycle credit or non credit, gold, livestock, motor boats and other capital goods http://www.scribd.com/doc/51419948/Fuel-BBM-Subsidy-in-Indonesia

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Indonesian Democracy Ten Messages about Structural Reform by Risti Permani | September 21, 2011 12:45 pm Jump to Comments

Fuel Subsidy: Whether, When or How the Government Will Remove It

The global economy has entered a new dangerous phase, said the International Monetary Funds Chief Economist Olivier Blanchard. Just recently the IMF cut its growth forecasts for the global economy to 4.0 percent for 2011 and 2012. Global economic uncertainties have led to high volatility in financial markets across the world. In Indonesia, Rupiah has shown a quite dramatic drop as foreign investors got rid of risky assets amid fears of worsening conditions in Europe which may significantly affect the Indonesian economy. A fiscal stimulus plan has been on the central bank of Indonesia (BI)s agenda if things get worse to loosen monetary policies in addition to cutting the benchmark interest rates. About two months ago discussion on fuel subsidy was headlines at various Indonesias news portals. However, this issues popularity seems to be taken away recently by the Nazaruddin case, Eid Fitr festive season (where thousands of cars, motorbikes, busses and flooded the Indonesian roads) and some other not so important news (eg. Bollywood cops). Should we expect that the government makes some change in terms of their attitudes to fuel subsidy responding to the worsening global economy? Professor Christopher Findlay of University of Adelaide interviewed the Indonesian Trade Minister, Dr Mari Pangestu, about the role of fuel subsidy in Indonesia. Listen to the full-interview: Dr Pangestu explained that the government has allocated approximately US$ 15 billion for fuel subsidy in 2012. This figure represents almost 9% of the overall state spending. There are at least two ways that the government can do to lessen its fuel subsidy burden. The first way is to provide some measures to restrict subsidised fuel use by limiting consumers who can access to subsidised fuel. The second way is to set a general increase in fuel prices combined with the provision of compensation schemes targeting the poor. Dr Pangestu argued that the second option seems to be the most efficient one. Restricting subsidies fuel use as in the first option implies that an effective system to distinguish between the poor and the not-so-poor must be in place. During my visit to Indonesia last month, I

could easily find banners at every gas station I went to saying Subsidised fuel is only for the poor. Yet, the saying seems to only be a suggestion rather than a regulation. Some luxurious cars were queing to purchase the subsidised fuel and no officials seemed to bother to ask the owners of those cars to purchase non-subsidised fuel. The Ulema Council (MUI) has already taken a role in educating consumers by considering to issue a fatwa stating that using subsidised fuel is unlawful (haram) for Muslims. It was a controversial move and, at the end of the day, it did not seem to impact on the subsidised fuel use. Whilst a general increase in fuel prices may be the most efficient option, there are some considerations need to be taken too. The government must ensure that they have compensation schemes to effectively target the poor. Nevertheless, Indonesia is pretty much better off in terms of understanding effective targeting. There have been some high quality studies exploring this targeting issue. For example, thanks to a study by Vivi Alatas of the World Bank and her coauthors (forthcoming at American Economic Review) we now know that a community-based targeting might be a good alternative to income-tested targeting in terms of gaining satisfaction and legitimacy. Based on their study, there seems to be little evidence of local elite capture in community-based targeting, that is a condition where local elites use public resources for their advantages. Increase in fuel prices also requires socialisation by the government. The fear of social tensions as a reaction of increased fuel prices has always been a concern. The upcoming election in 2014 might also be part of the governments consideration who struggle to manage the political economy aspects of this decision. Exporters might also be worried that increased fuel prices would further lower their profits on the top of decreasing demand from the global market due to the ongoing global financial crisis. However, Dr Pangestu explained that simulations that her team has done suggest that in the medium-term the impacts of increased fuel prices would not significantly affect the inflation rates. Looking back to Indonesias experience in 2005, Minister Pangestu reviewed that 130% increase in fuel prices at that time resulted 30% drop in total fuel consumption. A gradual increase might offer a better outcome. This would not only be good for Indonesias budget strain but also the environment and, as Prof Findlay added, to carbon emission. The removal of fuel subsidy is a good example of how a change in domestic policy can contribute to global environmental solutions. Whilst so far the Indonesian government still views that raising subsidised fuel prices as its last resort, there has been a debate on whether now is the right time to actually increase fuel prices. Let us summarise some of the reasons why the government should act now. Global energy issues are urgent. The process of economic rebalancing from West to East will potentially create energy supply problems and there is strong tendency that increasing trends in energy prices will continue in the future. The development of technology to provide renewable energy supply does not seem to keep up with increase in energy demand. Continuing fuel subsidy will put further burden on the governments budget constraint and leave very little incentive to Indonesian people to concern about efficiency and the environmental impacts that their daily activities actually cause. The government should act by 2012 at the latest if theyre concerned about the political impacts of a decision to increase fuel prices. This would at least give the government two

years to control damages, if any. Furthermore, as energy prices tend to continue to increase, it is politically more difficult to remove energy subsidies. So better to act now. In the midst of this global financial crisis, the inflation rates are expected to decrease due to weaker demand from around the globe. The inflationary impacts of increase in fuel prices would probably be unnoticeable. Dear government, please do not hesitate to act. We do not blame you. We just want to point out that you do not seem to provide the right response to this fuel subsidy issue (thats your No.2 problem).
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