Frightened pilots and fuel subsidies
Each time I travel abroad, I always
discuss two things with the taxi driver who drives me from the
airport to the hotel: the weather and the price of fuel. In my
experience, every taxi driver knows these two topics very well, and
especially the second, since his or her job is directly influenced by
I always enjoy their analysis: it is
not only original and outside the box, but also free from political
interest. From the “lectures” that result, I learn that fuel
prices are significantly higher than in Indonesia in almost every
country I visit. Instead of providing a subsidy, most countries
implement a fuel tax policy.
Taxi drivers almost always complain
about high gasoline prices.
However, at the end of the “lecture”
I have the impression that they understand the reason behind the
policy and hope that the government will improve road and traffic
conditions. Interestingly, my discussion with various taxi drivers in
Indonesia produces an almost similar conclusion: they don’t like
high fuel prices but they understand the reason for them.
Recently, I have recalled my
conversations with taxi drivers due to the discourse on the
government’s plan to increase fuel prices, which has become
headlines in the media.
According to data from GTZ, only 15
countries worldwide provide fuel subsidies and only 10 countries have
a domestic price lower than in Indonesia. The data shows that most of
these 10 countries are either major oil exporters, non-democratic
countries with authoritarian governments, or both. In short, such
countries implement subsidies because they produce a lot of oil,
because their government is trying to buy public support by setting a
low fuel price or because of a combination of the two reasons.
Indonesia is a net oil importer. It is
therefore unwise to provide a fuel subsidy since it is not only
expensive but also creates budget instability.
A large part of the
budget is allocated for the subsidy and any change in the
international oil price will need effort on the part of the
government to adjust the budget.
Unfortunately, no-one can accurately
predict the international oil price. Consequently, budget adjustment
is an unnecessary routine for the government. This costs a lot of
time and energy and distracts the government from focusing on other
Additionally, Indonesia is a working
democracy in which the government receives a lot of support from the
Even during last year’s challenging news environment,
around 60% of the people still had a positive view of President
Susilo Bambang Yudhoyono’s government.
Nevertheless, the facts show that
Indonesia is different from the 15 other countries that provide oil
subsidies. This is an unrealistic reality for Indonesia: we need to
end it and open a new chapter.
Objectivity, simplicity, credibility
Experts state that there are three
recipes for a successful public policy: objectivity, simplicity and
credibility. Without these three components, the chance of any policy
to improve public welfare will face tough challenges.
A policy is objective if it puts the
interest of the public, the ultimate beneficiaries of any public
policy, as its top priority. Personally, I have no doubt that the
government’s intention is the betterment of society by allocating
limited resources (the budget) more efficiently and fairly.
I question the aspect of simplicity in the government’s proposed
Initially the government planned to
differentiate the fuel price based on what year a vehicle was made,
with subsidized fuel available only for cars made in 2005 or before.
Lately, the policy has shifted toward fuel price differentiation
between motorcycles, public transport vehicles and private vehicles,
in which subsidized fuel will be available only for public transport
This is far from simple and practical.
It will create problems at each gas station, where buyers and sellers
will argue over what price they should pay. It could also potentially
stimulate moral hazard in which people will seek profit by taking
advantage of the price difference. In this sense, one price for all
seems a much better option.
How about policy credibility? The way
the government has responded to the public discourse recently by
swaying away from its original plan has made credibility a big
One day I flew from Jakarta to Bandung
on a small plane. The weather was unfriendly and the sky was foggy
but all the passengers felt fine until the door that separates the
cockpit and the passenger cabin opened unintentionally, allowing us
to see the body language of the pilot.
Through the open door we watched as the
pilot kept moving from one side to another of the cabin to get better
visibility. The nervous pilot kept wiping his sweating, nervous face
with a towel. After 20 minutes of this scary experience, finally we
landed safely at Bandung airport.
This shows us how important pilot
credibility is. Passengers will feel fine if the pilot looks firm and
confident. If he doesn’t feel confident, the passengers will still
be fine as long as he doesn’t show his concern.
This nicely depicts what has been
happening in Indonesia since the government announced it plans to cut
the fuel subsidy. The government is the pilot, the public is the
passengers, who are protesting against the proposed policy as if it
was unfriendly weather.
As long as the government looks firm
and confident the public would certainly support the plan.
Unfortunately, the media debate has created hesitancy among the top
leadership of the government, which keeps changing the plan and
making overly defensive comments to the media. It should be
remembered that if the pilot looks as if he is in a panic, no
passenger will want to join the flight.
Wijayanto is a vice rector at
Paramadina University. He is also the co-founder and managing
director of Paramadina Public Policy Institute. He can be reached at