Here’s my quick note on the back-and-forth debate regarding the fuel subsidies:
My fellow wonk friend Taufik wrote an article questioning those who are against the policy, whether they are only looking at the short-term welfare effects by keeping the low fuel prices. Agreeing with Taufik, the economics are clear here, scrapping fuel subsidies is the way to go. However, the political aspects remains to be tricky.
A caveat, the diagram above is a simplification of the real world situation in Indonesia. It is easy for policymakers to sit on the pedestal and argue that in the long-run we are maximizing welfare by removing the unsustainable subsidies. The truth is, the visibility of how welfare and equity are achieved really depends on where that money is being spent elsewhere, and how fast it can reach to the disadvantaged groups of society.
Therefore, those of you who are in disagreement, I would say that it is better to scrutinize the government more on Indonesia’s social welfare programs that targets better for the poor and investment on the public transport system – as the welfare effects are greater for society.
Take note, however, the government will not be winning any trust points with the citizens if they don’t prioritize correctly – such as establishing the anti-pornography task force over dealing with corruption.