Friday, November 07, 2008

Lower fuel price?

According to the news, the government will cut the price of subsidized fuel in response to the lower world oil price, effective December. As I wrote before, there is no economic justification to this populist policy since even with the current world price the subsidized fuel is still cheaper. The main objective of cutting the subsidy was to move domestic price closer to the international price so as to discourage smuggling and illegal mixing of gasoline and kerosene. So lower world price is good when you can't increase the domestic price. In addition, the subsidy thus far has been benefitting the wrong target, i.e the richer. So again, the rationale of the policy to reduce the price seems to lie completely on politcs. The election is coming, that is.

1 comment: said...

Just to give a comparison, the petrol price in UK just dropped from GBP 1.60 to GBP 0.97 per liter.

In Indonesian rupiahs, it's a little bit over Rp 19,000.