Indonesia – Politics of the oil subsidy: Who benefits?

Recently oil prices in the world have reached US$90 per barrel resulting in increasing retail oil prices in almost all countries. Consumers in Indonesia probably pay little attention to the skyrocketing prices because they enjoy heavy fuel subsidies from the government.

For example, gasoline in Indonesia is set at Rp 5,000 (US$55 cents) per liter, regardless of fluctuating market prices.
In Thailand, Malaysia, the Philippines and India, retail gasoline prices may range from Rp 7,000-9,000 per liter, about 50-100 percent higher than gasoline prices in Indonesia. Imagine — in Indonesia’s crowded city streets many consumers are enjoying the traffic jam. In the comfort of their air-conditioned luxury cars they are listening to music or watching television or videos while receiving state subsidies.

I have calculated the amount my family (with three small and medium size cars) spends for subsidized gasoline, assuming a mere Rp 2,000 price difference between gasoline in Indonesia and neighboring countries. My family is actually benefiting from the oil subsidy by as much as Rp 1-2 million monthly, which is not necessary.

On the other hand, the benefit of the subsidy for poor farmers and street vendors — who comprise about 60 percent of the Indonesian population and earn less than US$2 a day — is probably less than Rp 200,000 monthly. Why? The poor benefit indirectly from the subsidy, through lower transportation and consumer products costs. However simply because their total monthly household spending barely reaches Rp 2 million a month, their benefits are capped.

We can easily calculate the amount of the benefit accruing to the rich who have three or four luxury cars or to enterprises providing corporate cars to their employees — billions of rupiah annually, since 2000.

Jakarta Post