Tuesday, October 04, 2005

BBM price hike and a credit for the govt

I was attending a meeting in Thailand when the news broke out (yes, another one was the Bali bombings -- I am too sad to talk about this). It said, the government of Indonesia cut the fuel subsidy and accordingly raised the price. I was admittedly a little surprised with the magnitude, having seen all the resistance while the policy was underway. For premium gasoline, for example, I was hoping a full subsidy removal, but expecting somewhere between 50 and 80%. It was 87.5%. As for kerosene, I wasn't that surprised (it was a 187% hike) -- knowing that its former price had been the root cause of illegal mixing with premium gasoline.

But, I applaud the decisiveness. After all, this was a brave, unpopular call. And it was inevitable. It was really a matter of time. Some people argue that the timing is bad. I think it's not. In fact, there should be a dampening effect with the seasonal Ramadhan shopping spree, as opposed to that if the price adjustment took place before or after the Ramadhan. In addition, experience has told us that such price hike will on average have only 3 months of effective impact. Therefore, while we should submit to a double digit inflation this year (probably 11-12%), next year should be better.

Having said that, I am not hesitant to give a credit to the government. I even raised a discourse among fellow critics that cabinet reshuffle might not be the most important issue anymore (I think the demand for reshuffle is a function of the success of dealing with the oil problem). The recently launched "October 1, 2005 Package" provides another justification for that position. The October Policy includes, among all:
  • Reduction of sugar import tariff.
  • Removal of industry raw material import tariff.
  • Removal of converter kits import tariff.
  • Reduction of container handling charge and installment of a 50% cap on surcharge.
  • Closure of 73 truck inspection stations ("jembatan timbang").
This might be hard for some people. But that's the bitter pill for the better will.

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