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Subsidized Fuel Price Adjustment Is Inevitable

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By: Abdul Razak

Adjustments to the price of fuel oil (BBM) were unavoidable because world oil prices experienced a drastic increase due to the turmoil in Eastern Europe. The public also needs to understand this because the adjustment of fuel prices is not only in Indonesia. But it also happens in other countries.

As of September 3, 2022, the government has officially adjusted the price of Pertalite fuel to 10,000 rupiah per liter. Meanwhile, subsidized diesel fuel is 6,800 per liter. Meanwhile, the non-subsidized Pertamax fuel is priced at 14,500 rupiah per liter.

The government was forced to make price adjustments because the price of world crude oil also experienced a surge to 100 dollars per barrel (from the previous only 65 dollars per barrel). This price shift was triggered by Russia’s invasion of Ukraine, while there are oil refineries that supply crude oil to the rest of the world.

Price adjustments cannot be avoided because if the government continues to subsidize it, the state budget will be oversized. The subsidy is estimated at more than Rp. 502 trillion and will be very burdensome because the country’s needs are not only for fuel subsidies. Therefore, the fuel subsidy had to be cut and the fuel price adjusted slightly. Moreover, the economic price is 13,500 rupiah per liter, so 10,000 is still cheap.

The Executive Director of the Moya Institute, Heri Sucipto, stated that an adjustment to the price of subsidized fuel (Pertalite) was inevitable. However, it is necessary to find the right formula so that the socio-economic life of the community is not disturbed. The trick is to adjust the price a little, not immediately drastically so you are not surprised.

The government adjusted the price of Pertalite to 10,000 rupiah per liter even though the economic price was 13,500 and this adjustment was considered appropriate, because it was not too drastic. The difference in price is considered not to be a burden on the community. Moreover, the people’s economy has started to normalize even though the Covid-19 pandemic is still ongoing, so it is predicted that it will not be affected by changes in fuel prices.

If the fuel price is adjusted, it will also affect the price of other goods, but people don’t have to worry because it will not cause inflation. The reason is because the adjustment is still under control, and not drastically. The public is advised not to be afraid of fierce inflation, even when there was a monetary crisis like 1998, because the country’s economy is still relatively stable.

In order to further stabilize the country’s economy, the price of fuel must inevitably be adjusted. The reason is because in accordance with economic law, where the price of crude oil is higher, the selling price (fuel price) also increases. If it is not adjusted and subsidized continuously, the state finances will be shaky because they are burdened by continuous subsidies.

Subsidies are a ‘legacy’ from the New Order era and their effects are still inevitable until the reform era. In the past, fuel subsidies were given to stabilize the price as well as the price of basic necessities and other necessities. However, the subsidy became a ticking time bomb, where in the end it was the state budget that was struggling to bear it.

Therefore, at this time the community is invited to be independent and gradually reduce subsidies, so that the country’s economy is more resilient. If it continues to be subsidized, the APBN will be higher and when the funds are not sufficient, they will have to go into debt again. In fact, this is burdensome in the future because it continues to accumulate and is dangerous for the stability of the state’s finances.

Social Observer Professor Azyumardi Azra stated that the fuel price adjustment was unavoidable. This is to avoid a bigger negative impact, namely the financial crisis. In a sense, the government avoided the country from a financial crisis due to the soaring state budget. Don’t let Indonesia be like Sri Lanka, whose country was declared bankrupt due to not being able to pay off the country’s debt.

If Indonesia’s state budget soars, do not let the country’s debt increase and lead to bankruptcy like Sri Lanka. Therefore, the government is trying hard to keep Indonesia’s financial condition stable. One way is to adjust the price of Pertamax fuel. The public is asked to understand it and not experience fluctuations when fuel prices change.

Azyumardi added that financial liquidity should not be disrupted like in America, due to the bankruptcy of the state budget. In a sense, the state budget must be healthy and not too burdened by fuel subsidies. Adjusting the fuel price does not mean the government is selfish. Rather, it is a way to save the state budget and make Indonesia have a healthier economy and finances.

Adjustments to the price of fuel inevitably have to be done because the price of crude oil is experiencing a spike as well. Indonesia cannot avoid it because the political turmoil in eastern Europe also affects the rest of the world. Fuel price adjustments have also occurred in many other countries, so people are expected to understand and remain patient.

When fuel prices are adjusted, this is the government’s way of strengthening the state budget and preventing Indonesia from going bankrupt like Sri Lanka. Do not let the fuel subsidy disrupt the stability of the state budget. Indonesia’s economic condition needs to be saved and adjusting the price of fuel because the subsidy is reduced is one way, and people will understand why the price has changed.

The author is a contributor to the Pertiwi Institute

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