Saturday, November 22, 2014

Well, at least the oil companies are happy!

Big doings in Jakarta, and the little guy in Aceh is feeling the pinch, artificial or otherwise.  As many of you Indonesia-o-philes know, new prez Jokowi started implementing his promised energy policy this past week, and cut the gas and diesel  subsidy by 30.7 to 36%  The yowls of protest in Banda Aceh resounded all the way to my desk in New York.  I got calls and emails from JMD staff wondering how to handle the overnight rises in everything, especially vehicle fuel, which rose from 5,500/liter to about 7,500/litre. (about $2.40 per gallon.)  I hate to remind them that because of the subsidy, Indonesians pay some of the lowest fuel prices in the world, and some of the cost is still subsidized under this new plan.  But tell that to someone who considers himself lucky to be making $500 to $800 a month and you can understand their fear.

Don’t get me wrong—I think it’s a great step forward, and if Jokowi actually does with this money what he says he is going to do—put it towards improving/ maintaining infrastructure and improving the health and education system--I couldn’t be happier.  These are, after all, the issues I’ve been complaining about in my ongoing examination of the effects of the reconstruction funds on the current quality of life of Acehnese post-tsunami. But as the Diplomat notes,While the effect of some of these new policies will take months, if not years to evaluate, their overall trajectory is one that is likely to satisfy foreign investors, with the impact on local consumers (particularly the poor) unclear. However, there are signs that Jokowi’s administration understands this disconnect, and is formulating a policy to meet it.”

Well, let’s hope so.

Other factors were in play as the subsidy was cut.  The Central Bank raised interest rates to 7.75 to keep inflation from the subsidy cuts down, but which of course made prices in domestic goods rise.  The administration wants to double domestic oil production by 2020 and Pertamina, the MacDonalds of Southeast Asian oil companies, will be getting a 10-year tax break to invest $20 billion into making that happen, surely to be followed by some “interested partners” who will probably be receiving some of those same tax breaks.  One way or another, these subsidy cuts and tax holidays are going to cause “a problem for low income households.”  And, of course, “the clearest beneficiaries of this new batch of policies . . .  appear to be investors and the domestic energy industry.”

However, reports the Diplomat, “the government plans an aid program of 6 trillion rupiah ($493 million) to distribute funds to 15.5 million citizens so that the “recipients can use [them] to receive free medical care, school books and other benefits.” Still, this figure "represents less than one-sixteenth the amount of government revenue saved by the subsidy cut.”  Which is, in case you’re wondering, $8.2 billion annually.

So I am left once again alone onstage, in the dark, singing my usual aria, “Where is the rest of that money going?”

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