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Govt considers fuel rationing for private vehicles
The Indonesian Government is reportedly weighing the option of imposing a program of gasoline rationing for private vehicles if global oil prices continue their march to a level in excess of US$100 per barrel.
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When Indonesia was still under guidance of the IMF, the fuel subsidies were scheduled to be discarded. Fuel would then be subsidized nor taxed, so the prices would follow the global prices for oil and gas. Pres. Yudhoyono decided otherwise after the IMF was ehmm. kicked out.

A while back I read an interesting article about the fuel subsidies, it's a nice summary of all the disadvantages of fuel subsidies written by a board member of the Indonesian Transportation Society (somebody who should know):

When Indonesia started subsidizing fuel in 1967, in the early days of President Suharto, the policy seemed to make sense given the staggering poverty at the time. Hyperinflation hit 650 percent, and the resulting public anger forced Founding Father President Sukarno to step down after 22 years of power. Suharto then introduced fuel subsidies as a means to keep poverty at bay. Subsidies have remained a part of Indonesia's landscape; according to the GTZ fuel price survey, in 2004 Indonesia spent 10 percent of total state revenues on fuel subsidies.

In fact, generous subsidies are partly how Suharto managed to stay in power for over three decades. Subsidies are largely a political solution for economic problems. Yet while there is wide agreement that fuel subsidies are not sustainable, their effects on daily lives are not well understood. That is one reason why subsidies are rarely exposed to serious questioning. But the tragic fact is fuel subsidies are slowly choking our cities.

In Jakarta, Indonesia’s capital, motorization has gone hand in hand with urbanization. Since 1985, Greater Jakarta’s population has more than doubled, while motorized trips have increased almost ten-fold. Fuel subsidies have exacerbated this trend since, as many transport-economists argue, low fuel prices encourage the ownership and use of motorized vehicles.

Meanwhile, massive road infrastructure has been funded in an attempt to ease traffic congestion — money which does little to alleviate poverty. Moreover, while fuel subsidies are provided by the central government, local governments charge public-transport operators a levy, since urban public transport is run privately as an profitable enterprise, subject to licensing by local governments. So if you are rich and own a car, you get subsidized for driving; if you are not, and take public transport, you get charged.

Yet we know that public transport consumes less energy and road space per passenger-kilometer than private cars. Some even claim that in cities where public transport use is relatively high, social cohesion is stronger. Considering this, and the public costs associated with massive urban road development, it is hard to see how fuel subsidies benefit the poor.

Nor do fuel subsidies promote sustainable urban development. When motorized trips are relatively cheap, urban expansion tends to sprawl and cities become obese. Urban geographers note that European cities, which matured in the 19th century, maintain their compact urban nucleus. In contrast, American cities, shaped by the use of motor vehicles, tend to grow according to a centrifugal pattern. Modern Jakarta is following in the footsteps of its American counterpart.

Rural poor are also victimized. Rural farmland yields to estates for the rich, who then commute on subsidized gasoline. Today, one cannot help but notice that these low-density suburban developments have become enclaves of gated communities. While the government tends to look the other way when asked about decaying housing stocks in urban centers, they have endorsed new housing accessible only by cars. It’s a trend that exacerbates rather than ameliorates social inequality.

The impact of fuel subsidies on the urban environment is also clear. As motor traffic increases, air quality worsens. According to the Ministry of Environmental Affairs, motorized vehicles account for 70 percent of air pollution in Jakarta. Low fuel prices also do not promote more efficient— and therefore cleaner—combustion engines. Yet despite the fact that the government acknowledges the need to improve urban air quality, it insists on maintaining fuel subsidies. As oil prices have surged, the government has felt obliged to supply cheaper yet lower-quality fuel. But of course this only produces more pollution.

The contemporary irony is that the legacy of fuel subsidies is deeply and misleadingly imbedded as a pro-people policy. But rather than be subsidized, fuel should be taxed, at least for environmental reasons — in keeping with the ‘polluter pays principle’.

To date, however, curtailing fuel subsidies has not become part of the conventional wisdom in policy dialogues. Proposals to phase in a fuel tax—let alone to reduce spending on subsidies—are deemed to betray the national creed: ‘cheap oil for all’. Changing this situation will require vigorous policy advocacy. As sustainable development has become a widely accepted global concern, the international community should assist.

*Harya Setyaka is a Board Member of the Indonesian Transportation Society and a researcher at the Urban and Regional Development Institute (URDI). He can be reached at harya.setyakaRemoved to prevent your adress from being spammed. Click this to go to the user

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